As filed with the Securities and Exchange Commission April 29, 1998.
Registration No: 333-21335
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NUMBER 1
TO
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
___________________
PMC International, Inc.
(Name of small business issuer in its charter)
Colorado 6282 84-0627374
(State or jurisdiction (Primary (I.R.S. Employer
of Standard Industrial Identification
incorporation or Classification Code No.)
organization) Number)
555 17th Street, 14th Floor 555 17th Street, 14th Floor
Denver, Colorado 80202 Denver, Colorado 80202
(303) 292-1177 (Address of principal place of
(Address and telephone number of business or
principal executive offices) intended principal place of
business)
Kenneth S. Phillips
President and Chief Executive Officer
PMC International, Inc.
555 17th Street, 14th Floor
Denver, Colorado 80202
(303) 292-1177
(Name, address, and telephone number of agent for service)
Copies to:
Francis R. Wheeler, Esq.
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
(303) 861-7000
Approximate date of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than securities offered
only in connection with dividend or interest reinvestment plans,
check the following box. /X/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. / /
<PAGE>
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
- - ---------------------------------------------------------------------
<PAGE>
PROSPECTUS
3,450,973 Shares
PMC International, Inc.
Common Stock
This Prospectus relates to the offer and sale by certain
persons (and the transferees, pledgees, donees and successors
thereof) (collectively the "Selling Shareholders") of shares (the
"Shares") of Common Stock, par value $.01 (the "Common Stock"), of
PMC International, Inc. (the "Company") currently held, or issuable
pursuant to options held, by the Selling Shareholders. The Selling
Shareholders may sell the Shares from time to time in one or more
transactions, including one or more underwritten offerings. The
Selling Shareholders may effect such transactions directly to or
through securities broker-dealers in the over-the-counter market or
otherwise, and such broker-dealers may receive compensation in the
form of discounts, concessions, or commissions from the Selling
Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom the Selling Shareholder
might sell as principal, or both (which compensation as to a
particular broker-dealer may be in excess of customary
commissions). The Shares may also be offered in one or more
underwritten offerings, on a firm commitment or best efforts
basis. The underwriters in any underwritten offering and the terms
and conditions of any such offering will be described in a
supplement to this Prospectus. See "Selling Shareholders" and
"Plan of Distribution."
All Shares offered hereby are shares currently held by the
Selling Shareholders or are shares issuable upon exercise of
certain options and warrants currently held by Selling Shareholders. The
Company will not receive any of the proceeds from the sale of the
Shares offered hereby. The Company has agreed to bear all expenses
in connection with the registration and sale of the Shares being
offered by the Selling Shareholders other than compensation payable
to securities broker-dealers by the Selling Shareholders and/or the
purchasers of the Shares, any securities broker/dealer expense
allowances and transfer taxes. The expenses to be paid by the
Company in connection with the filing of Post-Effective Amendment
No. 1 relating to the registration of the Shares are estimated to
be approximately $10,000. The Company has agreed to indemnify
the Selling Shareholders against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Plan of Distribution." It is the view of
the Securities and Exchange Commission that such indemnification is
contrary to federal securities laws and unenforceable.
The Common Stock is not traded on an exchange or listed on The
Nasdaq Stock Market. It is traded in the over-the-counter market.
As a result, there may be a limited market for the Shares which
could have an adverse effect on the future sales price and
liquidity of the Shares. The last reported sale price for Common
Stock on April 20, 1998 was $3.25, as reported on the Bloomberg
financial markets system. See "Market for the Common Stock."
No dealer, salesperson or individual has been authorized to
give any information, or to make any representations, other than
those contained in this Prospectus or in a Prospectus Supplement in
connection with the offer made by this Prospectus and any
Prospectus Supplement, and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Company or the Selling Shareholders. Neither the delivery
of this Prospectus or any Prospectus Supplement nor any sale made
hereunder or thereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the
Company since the date hereof or thereof or that the information
contained herein is correct as of any time subsequent to the date
hereof or thereof. This Prospectus and any Prospectus Supplement
shall not constitute an offer to sell or a solicitation of an offer
to buy any of the Shares in any jurisdiction to any person to whom
it is unlawful to make such offer or solicitation in such jurisdiction.
A PURCHASE OF THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 3 TO 5 FOR A DISCUSSION OF CERTAIN RISK
FACTORS TO BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April __, 1998
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary 1
Risk Factors 3
Use of Proceeds 6
Market for the Common Stock 6
Dividend Policy 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Business 11
Management 22
Security Ownership of Certain Beneficial Owners and Management 28
Certain Relationships and Related Transactions 29
Description of Securities 30
Selling Shareholders 31
Plan of Distribution 34
Legal Matters 34
Experts 34
Additional Information 35
Index to Financial Statements F-1
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere
in this Prospectus. Investors should carefully consider the
information under the heading "Risk Factors." The information set
forth below contains "forward looking statements" within the
meaning of the federal securities laws, including statements
regarding opportunities for growth from expanded use of existing
distribution channels and expanded use by existing distribution
channels of the Company's products and services and similar
expressions concerning matters that are not historical facts.
These statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in
the statements.
The Company
PMC International, Inc., a Colorado corporation (the
"Company") develops, markets, and manages sophisticated investment
management products and services. Not a money manager itself, the
Company provides products and services that facilitate the
selection and/or monitoring of unaffiliated money managers or
mutual funds for customers of the Company's distribution channels
depending upon the size, sophistication and requirements of such
customers. The Company's products and services address investment
suitability and diversification, asset allocation recommendations,
portfolio modeling and rebalancing, comprehensive accounting and
portfolio performance reporting. The Company's revenues are
realized primarily from fees charged to clients based on a
percentage of managed assets and to a lesser extent from consulting
fees for certain advisory services and licensing fees from its
software products.
Founded in 1986, the Company is an independent sponsor of
privately managed accounts and asset allocation and wrap programs.
The majority of the Company's revenues are derived from its
individually managed wrap program, which the Company created and
has administered since 1987. In addition to its traditional wrap
program, since 1994 the Company has invested in developing a range
of related technology-based services and has added staff to develop
and support the Company's new products. The Company's products and
services are designed to assist professional financial consultants
in their efforts to market high quality, fully diversified
portfolio management products. Through the use of technology, the
Company assists third-party financial advisors such as banks,
insurance companies and brokerage firms (collectively,
"Institutional Channels") and independent financial planners
("Independent Channels") in allocating and diversifying a
customer's investment portfolio across multiple asset classes and
investments. With respect to Institutional Channels, the Company's
products allow for a repeatable sales process which helps increase
sales productivity while ensuring compliance with the Institutional
Channels' corporate and regulatory policies.
On December 15, 1997, at the Annual Meeting of Shareholders,
the Shareholders of the Company approved a 1 for 4 reverse split of
the Common Stock (the "Reverse Split"). The Company effected the
Reverse Split for all Shareholders of record as of December 30,
1997 by amending its Articles of Incorporation on that date. Such
Reverse Split was paid on December 30, 1997. Unless otherwise
noted, all references in this Prospectus to shares of Common Stock
and share prices reflect the Reverse Split.
As of March 31, 1998, the Company had a staff of 89 people,
including approximately 55 professionals, and conducts business in
a number of countries. The Company has four subsidiaries:
(i) Portfolio Management Consultants, Inc., an investment advisory
firm; (ii) Portfolio Brokerage Services, Inc., a broker/dealer;
(iii) Portfolio Technology Services, Inc., which specializes in
developing proprietary software for use in the financial services
industry and (iv) PMC Investment Services, Inc., an investment
advisory firm which specializes in mutual fund asset allocation
products. Unless the context otherwise requires, references herein
to the Company include the subsidiaries and predecessors of the
Company.
The Company's principal executive office is located at 555
17th Street, 14th Floor, Denver, Colorado 80202 and its telephone
number is (303) 292-1177.
<PAGE>
The Offering
Common Stock offered by the Selling Shareholders 3,450,973 shares(1)
Common Stock outstanding before the Offering 4,857,803 shares(2)
Common Stock outstanding after the Offering 5,251,555 shares(3)
Use of Proceeds The Company will receive
none of the proceeds of the
sale of the Shares. See
"Use of Proceeds."
___________________
(1)Includes 393,752 shares of Common Stock issuable upon exercise of
certain outstanding options and warrants held by Selling
Shareholders.
(2)Does not include 1,083,448 shares of Common Stock reserved for
issuance upon exercise of (i) warrants, (ii) options granted
under the
Company's prior Stock Option Plan for Employees and under its
Equity Incentive Plan adopted December 1997 and (iii) other options
granted to employees and directors.
(3)Does not include 689,696 shares of Common Stock reserved for
issuance upon exercise of (i) warrants, (ii) options granted under
the Company's prior Stock Option Plan for Employees and under its
Equity Incentive Plan adopted December 1997 and (iii) other options
granted to employees, consultants and directors.
<PAGE>
RISK FACTORS
An investment in the Common Stock involves a high degree of
risk. Prospective investors are advised that they may lose all or
part of their investment. Prospective investors should carefully
review the following risk factors.
Future Operating Losses May Result in Need for Additional
Capital. The Company has incurred substantial losses since
inception. The Company suffered a $4,001,000 loss for the year
ended December 31, 1996, and a loss of $3,823,000 for the year
ended December 1, 1997. Historically, the Company has not
generated sufficient cash for its operations and has suffered cash
flow shortages. The Company has heretofore derived working capital
principally from borrowings and equity financings. In December
1996, the Company closed a private placement of its equity
securities that generated approximately $7,500,000 of net proceeds,
after payment of expenses of the offering and the repayment of
approximately $2,500,000 of indebtedness. Approximately $1.8
million of the net proceeds was used to pay aged accounts payable
of the Company in late 1996 and early 1997, approximately $4.3
million was used to fund the Company's other working capital and
capital expenditure requirements during 1997 and approximately $1.4
million of the net proceeds have been pledged by the Company as
collateral for a loan made to a limited liability company owned and
controlled by the Company's Chief Executive Officer. See
"Business--Corporate History--Phillips & Andrus LLC; KP3, LLC." In
addition, on September 24, 1997, the Company closed a private
placement of its equity securities primarily to facilitate the
purchase of the PMCIS business (the "PMCIS Private Placement").
The balance of the proceeds from the PMCIS Private Placement were
used for the Company's working capital requirements for the fourth
quarter of 1997 and the first quarter of 1998. Through the first
quarter of 1998, continuing losses from operations resulted in the
Company's cash balances decreasing further. The Company is
currently investigating sources of short and long term capital as
well as the restructuring of certain operational systems and
customer relationships in order to support its working capital
requirements for the balance of 1998. The Company's future
liquidity needs are dependent upon the Company's ability to
generate higher levels of cash flow from operations, to borrow
funds, to complete additional equity offerings, or to reduce
operations, or a combination of the above. There can be no
assurance that financing will be available to the Company or that
the Company will otherwise find sources to meet its cash flow
requirements.
Limited Market for the Company's Common Stock May Adversely
Affect Share Price and Liquidity. The Common Stock is not traded
on an exchange or listed on The Nasdaq Stock Market ("Nasdaq")
National Market or SmallCap Market, but is quoted on The OTC
Bulletin Board(R)"OTCBB"). Transactions in the Common Stock are
subject to Rule 15c2-6 under the Exchange Act, which imposes
certain requirements on broker/dealers who sell such securities to
persons other than established customers and accredited investors.
For transactions covered by the rule, broker/dealers must make a
special suitability determination for purchasers of the securities
and receive the purchaser's written agreement to the transaction
prior to sale. Thus, Rule 15c2-6 may affect the ability of
broker/dealers to sell Common Stock and thereby the ability of
investors to sell their Shares in the secondary market. In
addition, securities quoted on OTCBB may be subject to more price
volatility than securities listed on an exchange or Nasdaq. Due to
the fact that the Common Stock is not listed on an exchange or on
Nasdaq and the application of Rule 15c2-6, the trading volume of
the Common Stock is extremely low. Consequently, there may be only
a limited market for the Shares. In addition, the lack of trading
volume may have an adverse affect on the price at which the Shares
may be sold.
The Common Stock was delisted from The Nasdaq SmallCap Market
in February 1995 because the Company failed to satisfy the
requirements for continued listing. Under listing requirements
recently adopted by Nasdaq, and approved by the Commission, to be
included in The Nasdaq SmallCap Market, among other requirements:
(i) an issuer must have net tangible assets of $4,000,000, (ii) its
common stock must have a minimum bid of at least $4.00 per share,
and (iii) it must have at least 300 holders of at least 100
shares. On April 20, 1998, the last reported sale price of the
Common Stock was $3.25 and as of December 31, 1997, the Company's
net tangible assets were $3,487,081. In January, 1998, the Company
submitted an application for listing on The Nasdaq SmallCap Market,
however, based upon the Company's net tangible assets falling
below $4.0 million and the bid price for the Common Stock falling
below $4.50, the Company has withdrawn its application and intends
to resubmit it when the Company meets the listing requirements.
Company Revenues Would Be Adversely Affected by a Decline in
the Stock Market and by Adverse Economic Conditions. The revenues
of the Company are directly dependent upon the amount of assets
managed or administered by Independent Channels and Institutional
Channels using the Company's products and services. A decline in
<PAGE>
the market value of such managed assets or a downturn in general economic
conditions could cause investors to cease using the products and
services offered through the Company's distribution channels,
including the Company's products and services, and could materially
and adversely affect the revenues of the Company.
PMCIS Acquisition Contingent Payments. On September 24, 1997,
the Company acquired all of the issued and outstanding common stock
of PMCIS in consideration for payment of $5,000,000 in cash at the
closing and two earn-out payments on the first and second
anniversary dates of the closing. The first earn-out payment will
equal 1.0% of PMCIS's standard fee assets under management in
excess of $500 million, determined on the one-year anniversary of
the closing of the PMCIS acquisition, not to exceed $2.0 million,
plus interest thereon at a rate of 8.75%. The second earn-out
payment will equal 1.0% of PMCIS's standard fee assets under
management in excess of $700 million, determined on the two-year
anniversary of the closing of the PMCIS acquisition, not to exceed
$2.0 million. These future contingent payments could have a
material negative impact on the cash flows of the Company if
anticipated assets under management and income levels are not
achieved and operating costs are not contained at desired levels.
To the extent that the contingent payments to be made in September,
1998 are of a material amount, the Company does not anticipate
having sufficient cash flow from operations to service such
payment. In that event, the Company intends to seek outside
sources of capital, but there can be no assurance that capital will
be available to the Company. See "Business-Corporate History-PMCIS
Acquisition and Financing."
The Company and its Customers Operate in a Very Competitive
Market. In offering services through its Institutional and
Independent Channels, the Company competes with other firms that
offer wrap and managed account programs. These distribution
channels in turn compete with banks, insurance companies, large
securities brokers and other financial institutions which offer
wrap and managed account programs to the public. The Company
believes that firms compete in this market primarily on the basis
of service, since the wrap fees charged by others are similar to
those charged by the Company. Firms that compete with the Company
in providing services to its Independent Channels and Institutional
Channels have more financial resources and greater recognition in
the financial community than the Company. Competitors may reduce
the fees charged for wrap and managed account programs or pursue
other competitive strategies that could have an adverse impact on
the Company. There are many alternatives to wrap programs that are
being offered to the public, such as life cycle funds, asset
allocation funds, portfolio strategies and third-party asset
allocation services, and these services are competitive with those
offered by the Company. As financial institutions continue to grow
and build in-house asset administration service capabilities, some
will be able to provide these services internally rather than using
outsourcing providers. Competitors may succeed in developing
products and services that are more effective than those that have
been or may be developed by the Company and may also prove to be
more successful than the Company in developing these products and
marketing these services to third-party asset managers. See
"Business--Competition."
The Company's Customers Are Under No Obligation to Use its
Products. Most of the Company's gross revenues currently are
generated by fees from the Company's Private Wealth Management
investment advisory programs. The programs are provided by
Institutional Channels and Independent Channels either under the
Company's name or under the "private label" of such channel. These
Institutional Channels and Independent Channels are under no
obligation to continue to utilize the Company's programs. While
the Company has no reason to believe that its current investment
advisory relationships will not continue to generate revenues for
the Company consistent with prior years, there can be no assurance
that such will be the case.
Failure to Manage Growth Effectively Could Strain Company
Resources. Primarily to permit the Company to build its internal
systems and to service product development for new relationships
being established with Institutional Channels, and as a result of
the PMCIS acquisition, the number of persons employed by the
Company increased from 43 on March 31, 1996 to 89 on March 31,
1998. A continuing period of rapid growth could place a strain on
the Company's management, operations, financial and other
resources. The Company's ability to manage its growth effectively
will require it to continue to invest in its operational and other
internal systems, and to retain, motivate and manage its
employees. If the Company's management is unable to manage growth
effectively and new employees are unable to achieve anticipated
performance levels, the Company's results of operations could be
adversely affected. Potential investors should consider the risks,
expenses and difficulties frequently encountered in connection with
the operation and development of an expanding business. There can
be no assurance that the Company will be able to manage effectively
any future growth.
<PAGE>
There Is No Demonstrated Market for the Company's Software
Products. The Company has spent substantial resources on research
and development of software products, principally Allocation
Manager(TM), an asset allocation software program that supports the
sale and service of its asset allocation investment products and
services. While the Company believes such software products will
be effective in supporting its other products and services, there
can be no assurance that such will be the case or that changes to
or interpretations of existing federal and state laws, rules and
regulations will not adversely affect the ability of such software
products to do so.
The Company Is Dependent on Third-Party Suppliers. The
Company's products are dependent upon the delivery of timely data
updates, typically on a quarterly basis, from third-party
providers. To the extent such updates are not made available to
the Company on a timely basis, it would materially and adversely
affect the Company's ability to deliver its products and related
services.
Loss of Key Personnel Could Adversely Affect Management,
Product Development and Marketing Activities. The success of the
Company is dependent upon the abilities of its executive officers.
The loss of the Company's executive officers may have a material
adverse affect on the Company's management, product development and
marketing activities. See "Management."
New Government Regulation Could Reduce Demand for the
Company's Products and Services. The Company's business falls
entirely within the securities industry, an industry which is
heavily regulated by the federal and state governments. New
regulatory changes affecting the securities industry could
adversely affect the Company's business. In addition, as
investment advisers and a broker/dealer, the Company's subsidiaries
are subject to regulation by the Commission, the NASD and state
regulatory agencies. Consequently, the Company could become
subject to restrictions or sanctions from the Commission, the NASD
or such state regulatory agencies. It is impossible to predict the
direction future regulations will take or the effect of such
regulations on the Company's business.
The Company Is Controlled by a Small Group of Shareholders.
As of March 31, 1998, the Company's executive officers, directors
and affiliates of such persons beneficially own approximately
31.48% of the outstanding shares of Common Stock. This group of
shareholders therefore is in a position to exercise a substantial
influence over matters submitted to the vote of the Company's
shareholders. See "Description of Capital Stock."
Dividends Will Not Be Paid on Common Stock for the Foreseeable
Future. Payment of dividends by the Company on its Common Stock is
contingent upon, among other things, future earnings, if any, the
financial condition of the Company, capital requirements, general
business conditions, and other factors which cannot now be
predicted and, subject to the limitations described below, is in
the discretion of the Board of Directors of the Company. In
addition, no dividends may be paid on Common Stock unless dividends
payable on Series A Preferred Stock (the "Preferred Stock") are
current. See "Description of Capital Stock--Preferred Stock." As
of March 31, 1998 the Company was in default in the payment of
dividends on the Preferred Stock in the amount of $298,419. The
Company has never paid dividends on the Common Stock and it does
not intend to do so in the foreseeable future. See "Market for the
Common Stock."
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Shares by the Selling Shareholders.
MARKET FOR THE COMMON STOCK
Prior to February 1995, the Common Stock was traded on The
Nasdaq Small Cap Market. See "Risk Factors--Limited Market for the
Company's Common Stock May Adversely Affect Share Price and
Liquidity." The Common Stock currently trades on The OTC Bulletin
Board under the symbol "PMCI." The following table shows the high
and low bid prices and trading volume of the Common Stock for the
periods indicated as reported by the principal market maker in the
Common Stock. These quotations reflect inter-dealer prices without
retail markup, markdown, or commissions and may not necessarily
represent actual transactions.
High Bid Low Bid
1995
First Quarter $5.00 $2.75
Second Quarter $2.75 $2.00
Third Quarter $5.25 $2.25
Fourth Quarter $6.50 $3.00
1996
First Quarter $4.00 $2.50
Second Quarter $7.25 $3.75
Third Quarter $8.25 $5.50
Fourth Quarter (1) $8.00 $5.50
1997
First Quarter $10.00 $8.00
Second Quarter $10.00 $6.50
Third Quarter $7.75 $5.00
Fourth Quarter $7.00 $6.00
1998
First Quarter $7.00 $4.00
Second Quarter (2) $4.25 $3.125
(1) Does not reflect the private placement of 1,294,250 shares of
Common Stock by the Company in December 1996 at a price of $6.50
per share.
(2) Through April 16, 1998.
As of April 16, 1998 the Company had approximately 392 record
holders of its Common Stock.
The Company currently has outstanding a total of 138,182
shares of Preferred Stock. As of March 31, 1998, the Company was
in default in the payment of dividends on the Preferred Stock in
the amount of $298,419. The Company is prohibited from paying
dividends on its Common Stock so long as it is in default in the
payment of dividends on the Preferred Stock. See "Risk
Factors--Dividends Will Not Be Paid on Common Stock for the
Foreseeable Future."
<PAGE>
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock and
currently intends to retain all future earnings, if any, for the
continued growth and development of its business and has no plans
to pay cash dividends in the future. Any change in the Company's
dividend policy will be made in the discretion of the Company's
Board of Directors in light of the Company's future earnings,
financial condition and capital requirements and of general
business conditions and other factors that cannot now be predicted.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information that the Company
believes is relevant to an assessment and understanding of its
results of operations. It should be read in conjunction with the
Financial Statements and Notes included elsewhere herein. This
discussion contains "forward looking statements" within the meaning
of the federal securities laws, including statements regarding
opportunities for growth from expanded use of existing distribution
channels and expanded use by existing distribution channels of the
Company's products and services and similar expressions concerning
matters that are not historical facts. These statements are
subject to risks and uncertainties that could cause results to
differ materially from those expressed in the statements. For more
information, see "Risk Factors."
Overview
The Company develops, markets, and manages sophisticated
investment management products and services. Not a money manager
itself, the Company provides products and services to facilitate
the selection and/or monitoring of unaffiliated money managers or
mutual funds for customers of the Company's distribution channels
depending upon the size, sophistication and requirements of such
customers. The Company's products and services address investment
suitability and diversification, asset allocation recommendations,
portfolio modeling and rebalancing, comprehensive accounting and
portfolio performance reporting. The Company's revenues are
realized primarily from fees charged to clients based on a
percentage of managed assets and to a lesser extent from consulting
fees for certain advisory services and licensing fees from its
software products. Fees based upon managed assets typically range
from 20 to 250 basis points per year, based upon a number of
factors such as the size of account and scope of services
provided. At the present time, the principal factors affecting the
Company's revenues are whether the Company adds or loses clients
for its investment management services, the performance of equity
and fixed income markets, and the type and size of accounts managed
by the Company and related differences in fees charged.
The Company acquired PMCIS on September 24, 1997 (see Note 1
to Financial Statements of the Company). The impact of the
acquisition on the Company's statements of income is fully
reflected on the December 31, 1997 balance sheet. Beginning in the
fourth quarter 1997, PMCIS's operations were fully reflected in the
Company's financial statements.
Results of Operations
Year Ended December 31, 1997, Compared to Year Ended December 31,
1996
Revenues. Revenues were $14,900,000 for the year ended
December 31, 1997, compared to $10,100,000 for the year ended
December 31, 1996, an increase of 48%. The increase was
attributable primarily to the PMCIS acquisition contribution of
$3,000,000 for the fourth quarter and the contribution of $733,000
arising from the Company's new relationship with Ernst & Young,
LLP. New business, such as Ernst & Young LLP, pays the Company
only its net portion of the fees, and does not include the fees for
third parties (i.e, portfolio managers, solicitors, brokerage or
custody). Historically, fees paid to the Company through its
primary distribution channels included fees payable for these other
services. Revenues from Republic National Bank of $550,000 were
not recognized in 1997 as was anticipated due to product roll-out
delays.
Investment Manager and Other Fees. Investment Manager and
Other Fees were $8,200,000 for the year ended December 31, 1997,
compared to $5,600,000 for the year ended December 31, 1996, an
increase of 46%. Direct
<PAGE>
expenses increased primarily as a result
of the PMCIS acquisition. However, as discussed above, direct
expenses did not increase in proportion to revenues as certain of
these revenues, such as Ernst & Young LLP, are recognized on a net
basis to the Company.
Net Revenues after Investment Manager and Other Fees. Net
Revenues after Investment Manager and Other Fees were $6,700,000
for the year ended December 31, 1997, compared to $4,500,000 for
the year ended December 31, 1996, an increase of 49%. These
increases are explained above under Revenues and Investment
Management and Other Fees.
Operating Expenses. Operating Expenses were $10,500,000 for
the year ended December 31, 1997, compared to $8,500,000 for the
year ended December 31, 1996, an increase of 24%. These increases
were due primarily to an increase in salaries and benefits which
increased $1,400,000 or 40%, and depreciation and amortization
increased as a result of the expansion of the Company's products
and services, the development of internal systems and the servicing
of several new distribution channels and customers, primarily
PMCIS, Republic National Bank and Ernst & Young LLP. On a
favorable note, the Company has been able to decrease payroll and
related expenses in 1998 which will result in savings of
approximately $1,500,000 annually; this is the result of layoffs,
attrition, and the PMCIS acquisition. The Company does not
anticipate significant purchases of equipment or capital assets in
1998.
Income Taxes. The Company's effective tax rate for 1997 is 0.
Net Loss. The Company recorded a net loss of $3,800,000 for
the year ended December 31, 1997 as compared to $4,000,000 for the
year ended December 31, 1996. The improvement in earnings was the
result of revenues growing at a faster pace than direct and
operating expenses. However 1997 earnings estimates were not met.
This was due to higher than expected the costs related to:
development of the infrastructure to support new business
relationships; management restructuring; the PMCIS acquisition; and
raising capital.
The Company is in the process of converting certain assets
under administration from one portfolio accounting system to a
third party system. The ability to transfer those accounts,
maintain customer satisfaction, and manage related operating costs
could impact the financial results of the Company.
The revenues of the Company are directly dependent upon the
amount of assets under management or administered by the Company.
A decline in market value or in assets under management as a result
of market conditions or customer satisfaction could impact the
future profitability of the Company.
Liquidity and Capital Resources
At December 31, 1997, the Company had cash of $3,000,000, a
substantial portion of which was held in short-term interest
bearing accounts, including restricted cash of $1,500,000.
Year Ended December 31, 1997. Cash used in operating
activities was $3,400,000. This was due primarily to a net loss
from operations. Cash used in investing activities was
$6,400,000. Cash used in investing activities was the result of
goodwill generated from the PMCIS acquisition and capital
expenditures incurred as a result of business expansion. Cash
provided by financing activities of $6,300,000 was primarily
related to the September 1997 private placement of common stock.
PMCIS Acquisition and Financing. On September 24, 1997, the
Company completed the acquisition of PMCIS (formerly ADAM
Investment Services, Inc.), a financial services and investment
advisory company headquartered in Atlanta, Georgia. PMCIS has
provided investment consulting services to institutional investors
since 1980. PMCIS's primary services are based around mutual
funds. PMCIS offers seventeen model portfolios constructed using
no-load mutual funds and funds available at net asset value. These
"standard" portfolios consist of five global tactical asset
allocation portfolios, five global strategic asset allocation
portfolios and seven asset class portfolios that concentrate on
narrow asset class groups. PMCIS also has five strategic asset
allocation portfolios constructed using mutual funds that invest in
companies that are identified as operating in a socially
responsible manner. PMCIS's mutual fund portfolios are also
offered as options for use by 401(k) plans and with several
insurance companies within variable life and variable annuity
contracts. PMCIS currently has a staff of approximately 16 people
who are located either in its corporate
<PAGE>
headquarters in Atlanta,
Georgia or in the Company's headquarters in Denver, Colorado. In
1995, PMCIS acquired Optima Funds Management, Inc. ("Optima"), a
company that provides mutual fund wrap services to clients. Optima
was merged into PMCIS in December, 1997.
The agreement providing for the acquisition of PMCIS by the
Company provided that the Company would acquire all of the
outstanding capital stock of PMCIS for up to $9.0 million in cash
and up to $200,000 in Common Stock if certain conditions are met
over time. In addition, the Company agreed to assume the normal
operating liabilities of PMCIS at closing of the acquisition,
estimated to be approximately $1.6 million. At the closing of the
PMCIS transaction, the Company paid $5,000,000 in cash and agreed
to make two earn-out payments on the first and second anniversary
dates of the closing. The first earn-out payment will equal 1.0%
of PMCIS's standard fee assets under management in excess of $500
million, determined on the one-year anniversary of the closing of
the PMCIS acquisition, not to exceed $2.0 million, plus interest
thereon at a rate of 8.75%. The second earn-out payment will equal
1.0% of PMCIS's standard fee assets under management in excess of
$700 million, determined on the two-year anniversary of the closing
of the PMCIS acquisition, not to exceed $2.0 million. The Company
anticipates that PMCIS will continue to operate as a wholly owned
subsidiary of the Company in the future.
In connection with the PMCIS acquisition, on September 24,
1997, the Company sold 1,220,749 shares of its Common Stock in the
PMCIS Private Placement at a price of $6.00 per share (adjusted for
the Reverse Split). The proceeds from this transaction, after
deducting expenses relating to the issuance of the Common Stock,
were approximately $6,500,000, of which the Company used $5,000,000
to purchase PMCIS at the PMCIS closing. The additional $1,500,000
is currently being used by the Company for working capital
purposes.
Cash Flow Requirements. Most of the Company's ongoing losses
and additional cash flow requirements relate to its addition of
staff and incurrence of capital expenditures in anticipation of
establishing and developing new distribution relationships,
specifically new institutional clients and, more recently, the
increased spending in integrating the PMCIS business in the
Company. The Company recognizes that there generally is a
substantial delay between when such relationship costs as these are
incurred and when the related revenues are recognized. While there
can be no assurance such will be the case, the Company anticipates
that its use of cash will increase in the first quarter of 1998
before decreasing in the second and third quarters of 1998 as cash
is received from developing distribution relationships and the
PMCIS business is more fully integrated into the Company. Future
cash needs will depend largely upon the Company's success in
developing customer relationships and servicing existing
relationships, with the intended result of increasing assets
managed using the Company's products and services. See "Risk
Factors--Future Operating Losses May Result in Need for Additional
Capital." The Company anticipates that it will continue to
experience operating losses until such time as it can realize the
benefits of: the PMCIS acquisition, the related assets under
management and the expected economies of scale of merged
operations; employee attrition and turnover, and related reduction
in payroll and associated costs; the launching of new institutional
programs and the realization of associated fee income; and, other
developing relationships and the ability to leverage personnel and
manage operating costs in a normal operating environment.
On March 9, 1998, the Company obtained a line of credit in the
amount of $600,000 from a bank to finance the outstanding
receivable from Ernst & Young. Pursuant to its agreement with
Ernst & Young, the Company is to receive certain minimum revenues
quarterly through 1998. Those revenues are reflected as an account
receivable in the amount of $733,000 at December 31, 1997.
The Company is currently investigating sources of short and
long term capital as well as the restructuring of certain
operational systems and customer relationships, in order to support
its working capital requirements for the balance of 1998. The
Company's future liquidity needs are dependent upon the Company's
ability to generate higher levels of cash flow from operations, to
borrow funds, to complete additional equity offerings, or to reduce
operations, or a combination of the above. There can be no
assurance that financings will be available to the Company or that
the Company will otherwise find sources to meet its cash flow
requirements.
The Company has historically incurred net losses and
accordingly experience cash flow problems. As a result of the
acquisition of PMCIS, the Company is obligated to make a deferred
purchase payment on September 24, 1998. The payment will be equal
to 1.0% of certain PMCIS assets under management in excess of
$500,000,000, with the payment not to exceed $2,000,000. As of
December 31, 1997, this payment would not be able to be made
principally
<PAGE>
due to the fact that $1,400,000 of cash is restricted.
In addition, through the first quarter of 1998, continuing losses
from operations have resulted in the Company's cash balances
decreasing further. In March 1998, the Company implemented a cost
reduction plan. Management believes that this plan along with
projected increases in revenues and deferral of payments of
expenses should allow the Company to continue without requiring
additional resources, excluding the PMCIS payment. The Company is
currently investigating sources of short and long term capital to
meet the PMCIS payment as well as working capital needs. Should
additional capital not be raised, the Company will be required to
restructure the terms of the PMCIS payment, to remove the
restriction from its cash balances, restructure its operations or a
combination of the above. See "Risk Factors--Future Operating
Losses May Result in Need for Additional Capital."
1996 Private Placement and Restructuring. In December 1996
the Company completed a private placement of 1,294,250 shares of
Common Stock at a price of $8.50 per share. Also in December 1996,
the Company completed a restructuring of its debt and a partial
restructuring of its outstanding Preferred Stock. The
restructuring involved (i) the payment of all outstanding interest
on the Bedford loans, the repayment to Bedford of $1,976,250 of
outstanding principal on the Bedford loans, the exercise by Bedford
of warrants to purchase 255,937 shares of Common Stock and the
delivery by Bedford of canceled promissory notes in the amount of
$1,023,750 in satisfaction of the exercise price of the warrants,
the cancellation of Bedford's remaining warrants, and the issuance
to Bedford of new warrants to purchase up to 37,500 shares of
Common Stock at an exercise price of $8.50 per share; (ii) the
issuance of 375,000 shares of Common Stock upon the exercise of
warrants issued to investors in connection with the Company's
private placement of promissory notes and warrants in December
1995/January 1996 and May/June 1996 and the delivery of canceled
promissory notes in the aggregate principal amount of $1,500,000 in
satisfaction of the exercise price of such warrants, payment by the
Company of all interest accrued on such notes as of the exercise
date, and the issuance of new warrants to purchase an aggregate of
up to 37,500 shares of Common Stock to such investors; (iii) the
repayment of the November 1996 bridge loan, and (iv) the conversion
of 173,120 shares of Preferred Stock into 59,510 shares of Common
Stock, resulting in a reduction in the Company's cumulative
dividend obligation to the holders of Preferred Stock from $583,576
as of September 30, 1996, to $322,700 as of December 31, 1996. The
conversion of additional shares of Preferred Stock into Common
Stock was effected in January 1997.
As a result of the private placement and restructuring, the
Company's shareholders' equity increased from a $4,047,682 deficit
at September 30, 1996 to $6,270,537 at December 31, 1996 and cash
increased from $701,160 at September 30, 1996 to $6,499,000 at
December 31, 1996. Through December 31, 1997, approximately $1.4
million of the net proceeds was pledged by the Company as
collateral for a loan made to a limited liability company owned and
controlled by the Company's Chief Executive Officer, approximately
$1.8 million was used to pay aged accounts payable of the Company
in late 1996 and early 1997 and approximately $1.8 million was used
to fund the Company's other working capital and capital expenditure
requirements during 1997. See "Business--Corporate History--Phillips
& Andrus LLC; KP3, LLC."
Uses of Cash. Between December 31, 1996, and December 31,
1997, cash and cash equivalents decreased from $6,499,000 at
December 31, 1996 to $3,000,000 ($1,500,000 of which was
unrestricted) at December 31, 1997 as the Company made capital
investments into furniture, fixtures and product development and
reduced other liabilities and accounts payable. Investment
management fees receivable increased $736,000 during the period
primarily as a result of the accrual of fees due from the new
relationships being established with Institutional Channels. Other
assets and liabilities have increased as a result of the PMCIS
acquisition and in conjunction with the increase of sales volume.
See "--Results of Operations--Twelve Months Ended December 31, 1997
Compared to Twelve Months Ended December 31, 1996."
In January 1997, the Company provided assistance to Mr.
Phillips, the Company's President and Chief Executive Officer, by
pledging cash collateral in the amount of $1,890,000 to a bank in
connection with the bank's loan to KP3, LLC (" KP3"), a company
owned and controlled by Mr. Phillips. The loan was made to KP3 for
the purpose of financing payment of the deferred portion of the
purchase price of 410,961 shares of the Company's Common Stock
owned by KP3 that were purchased from Mr. Marc Geman, a former
officer of the Company, at the time he terminated his association
with the Company (the " KP3 Shares"). See "Business--Corporate
History--SEC Investigation and Settlement." The Company agreed to
provide collateral for the loan for up to two years and to lend
funds to KP3 to service interest payments on the loan during that
period. The pledge by the Company of collateral for the loan
permitted the deferred portion of the purchase price of the
Company's Common Stock to be paid to Mr. Geman, thereby eliminating
the possibility that Mr. Geman could reacquire a substantial stock
ownership in the Company. See "Business--Corporate
<PAGE>
History--Phillips
& Andrus, LLC; KP3, LLC." Through December 31, 1997 and March 31,
1998, the Company had lent $150,800 and $190,000, respectively, to
KP3 specifically to service interest payments on the KP3 loans.
KP3 has agreed to reimburse the Company for all amounts paid by the
Company toward the loan or for collateral applied to the loan,
including interest at an annual rate of 9% and has granted the
Company a security interest in the KP3 Shares. Such loan was
restructured through a different bank on October 1, 1997 and April
15, 1998. In connection therewith, the Company has provided two
cash collateral guarantees totaling $1,750,000; the Company retains
the 410,961 KP3 shares as collateral. The due date of the new
loans are December 31, 1998.
Capitalized Software Development Costs. The Company has
incurred significant costs during the past several years in
developing internal operational systems and in developing,
marketing and supporting its proprietary Allocation Manager(TM)
investment advisory software for use by professional financial
consultants and expects to have continuing costs in 1997 relating
to the enhancement of Allocation Manager(TM). Prior to achieving
technological feasibility in 1995, the Company incurred
approximately $50,000 in research and development costs after
receiving the products from the unrelated individuals. These costs
have been included in the statement of operations for 1995. All
subsequent costs incurred directly related to the development of
the software were capitalized. Capitalized costs are being
amortized over the economic life of the software, which in this
case is three years. The Company's policy is to capitalize all
software costs incurred in developing computer software products
until such products are available for release to customers.
Subsequent cost incurred to enhance and redesign existing software
products are capitalized and such capitalization ceases when the
enhanced or redesigned products are released. It is the Company's
policy to amortize and evaluate software for net realizable value
on a product-by-product basis. The software became available for
sale, subject to enhancement and customization, during 1996. The
Company's plans to generate revenues from this product are
four-fold: license fees, customization fees, a continuing fee equal
to a percentage of assets under management of the end users
purchasing such software, and annual maintenance fees. Costs of
maintenance and customer support are charged to expense when the
related revenue is recognized, or when those costs are incurred,
whichever occurs first.
The Company has also capitalized the acquisition costs of
software acquired from third parties in connection with the
development of its internal systems. See "--Results of
Operations--1996 Compared to 1995--Software Development Costs."
Other Matters. In seeking to capture greater market share,
the Company has introduced restructured and unbundled pricing which
in some instances results in lower pricing for some of its services
in certain of its distribution channels. The Company may make
additional adjustments in the future. As a result of the
restructured pricing, gross revenues as a percentage of assets
under management may decrease.
The Company anticipates that it will continue to experience
operating losses until such time, if ever, as investment management
fees from managed assets and consulting and license fees increase
sufficiently to cover the Company's increasing operating expenses.
The Company is investigating sources of long and short term
capital, as well as the restructuring of certain of its operational
systems and customer relationships in order to obtain and/or
generate sufficient working capital to meet its requirements for
the balance of 1998. There can be no assurance that the Company's
products and services will be successful, that they will generate
adequate revenue to meet the Company's capital needs, that sources
of capital will be available to the Company as the need arises, or
that the Company will become profitable in the future. See "Risk
Factors--Future Operating Losses May Result in Need for Additional
Capital", and "--PMCIS Acquisition Contingent Payments."
BUSINESS
Industry Overview
The financial services industry has been one of the fastest
growing sectors in recent years. As the industry has grown, a
substantial shift from commission and transaction-based products to
advisory and fee-based products has occurred. Evidenced most
clearly in the popularity of mutual funds, consumer demand for
investment advice and services in connection with managed asset
products has increased enormously over the past 10 years. The
mutual fund industry has grown from 1,528 funds encompassing $495
billion of assets in 1985 to 6,809 funds encompassing $4.49
trillion of assets in 1997. Increasingly, investors are looking
for expertise to assist them in understanding the range of
<PAGE>
investment products that are currently marketed. As such, managed
account programs, such as asset allocation and wrap accounts which
assist investors in developing and implementing appropriate
investment strategies, have grown significantly to service this
segment of the marketplace. Wrap programs, which offer a
highly-personalized, fee-based (as opposed to commission-based)
platform for financial management, have grown to more than $139
billion in assets at year-end 1996.
In recent years, there have been two principal objectives in
the development and marketing of asset allocation and wrap
programs. First, to improve customer service, programs were
developed offering asset allocation and professional money
management services that would better position a customer s
investment portfolio. Asset allocation is believed to be a
significant determinant of successful long-term investment
performance. In addition, by consolidating the numerous investment
services, costs of portfolio management can often be reduced as
compared to purchasing individual services in traditional a la
carte fashion. The second reason for developing these programs was
to shift customer assets from dormant custody accounts, which
traded periodically and without predictability, into predictable
revenue producing assets for the sponsoring firm. In developing a
"trust building" product, wrap program sponsors provide the
following four basic functions for a customer in addition to money
management, brokerage and custody services: (i) customer
evaluation, (ii) asset allocation and investment policy
development, (iii) investment management evaluation and selection,
and (iv) quarterly monitoring and reporting services.
As wrap programs have grown in size and popularity, investment
portfolio managers (those that manage individual accounts
consisting of stocks and bonds) and mutual fund distributors are
increasing their involvement within these programs. These programs
give money managers and mutual funds the ability to market
themselves and participate in distribution channels of financial
planners, which in turn provide them with the opportunity to
increase their assets under management. With attention rapidly
shifting to long-term asset allocation strategies, consultant wrap
assets, assets managed by professional money managers, have grown
from $60 billion in 1993 to$103.2 billion in 1996, while mutual
fund wrap assets have grown from $8 billion in 1993 to $36.2
billion in 1996. In 1988, assets in these wrap programs were
estimated at less than $2 billion.
Background of the Company
Founded in 1986, the Company is an independent sponsor of
privately managed accounts and asset allocation and wrap programs.
The majority of the Company's revenues are derived from its
individually managed wrap program, which the Company created and
has administered since 1987. In addition to its traditional wrap
program, since 1994 the Company has invested in developing a range
of related technology-based services and has added staff to develop
and support the Company's new products. The Company's products and
services are designed to assist professional financial consultants
in their efforts to market high quality, fully diversified
portfolio management products. Through the use of technology, the
Company assists third-party financial advisors such as banks,
insurance companies and brokerage firms (collectively,
"Institutional Channels") and independent financial planners
("Independent Channels") in allocating and diversifying a
customer's investment portfolio across multiple asset classes and
investments. In respect to Institutional Channels, the Company's
products allow for a repeatable sales process which helps increase
sales productivity while ensuring compliance with the Institutional
Channels' corporate and regulatory policies.
The Company has a staff of approximately 89 people, including
approximately 55 professionals, and conducts business in a number
of countries. The Company has four subsidiaries: (i) Portfolio
Management Consultants, Inc., an investment advisory firm;
(ii) Portfolio Brokerage Services, Inc., a broker/dealer;
(iii) Portfolio Technology Services, Inc., which specializes in
developing proprietary software for use in the financial services
industry; and (iv) PMCIS Investment Services, Inc., an investment
advisory firm which specializes in mutual fund asset allocation
products.
Products and Services
Portfolio Management Consultants, Inc.
Portfolio Management Consultants, Inc. ("PMC"), a wholly owned
subsidiary of the Company, currently has four discrete but
vertically integrated product lines. Each product offered by PMC
is designed to assist professional financial consultants in various
aspects of their business. The four services are: (i) Private
Wealth Management(TM), PMC's individually managed asset and wrap
account program, (ii) Allocation Manager(TM), a mutual fund asset
allocation
<PAGE>
program available both on paper and through the
Company's proprietary software that provides comprehensive and
detailed investment suitability analysis, recommended allocation of
assets, portfolio modeling and rebalancing, and comprehensive
portfolio performance reporting, (iii) Managed Account Reporting
Services ("MARS"), a portfolio accounting and reporting service
that operates as a service bureau, and (iv) Style Manager , a
discretionary money management program, using style index funds and
mutual funds, that offers equity style rotation. In addition, PMC
provides consulting services to Institutional Channels and high net
worth customers.
Private Wealth Management(TM)
Private Wealth Management(TM), PMC's multi-manager institutional
wrap program, has historically been PMC's largest revenue
producer. Targeted toward customers with high net worth (typically
having a portfolio larger than one million dollars), Private Wealth
Management(TM) assists financial planners in assembling a
custom-selected team of professional money managers which precisely
matches an individual investor's personal investment goals, risk
tolerance, and objectives.
Each portion of an individual's portfolio (allocated into
asset classes such as equity, fixed income and cash, and asset
sub-classes such as value, growth, large cap, small cap, and
emerging markets) is managed by an institutional money management
firm that has been chosen from PMC's list of recommended managers
as best suited to match an investor's investment philosophy within
a specific discipline. An important and proprietary component of
the Private Wealth Management(TM) program involves the basis of
selection of these money managers. PMC currently recommends a
number of independent money managers for its Private Wealth
Management(TM) multi-manager program, representing a diverse range of
philosophies and styles. These managers are chosen based largely
on quantitative analysis emphasizing return-based, multi-factor
style benchmarking. High correlation to benchmark indices,
supported by positive alpha, are necessary to meet the "Preferred"
standard for manager recommendations. Also considered in manager
evaluations are historical performance, investment philosophy and
style, disciplines, employee turnover, rate of growth, accounts
gained or lost, and industry reputation. To help a customer choose
and understand investment options, PMC provides detailed profiles
on money managers in the context of style and methodology to
achieve maximum investment diversification. Additionally, PMC will
provide guidance on the termination of existing managers and the
rebalancing of the customer's assets. The Company considers
periodic portfolio rebalancing decisions to be an extremely
important determinant of long-term performance. Thus, several
rebalancing options are offered within PMC's private account
programs.
Private Wealth Management(TM) is marketed under both the PMC
label and private labels. Institutional Channels currently using
private-label versions of Private Wealth Management(TM) include Chase
Investment Services Corp., National Financial Correspondent
Services ("NFCS"), the wholly-owned brokerage and securities
clearing subsidiary of Fidelity Management and Research, Israel
Discount Bank of New York, Ernst & Young LLP, Republic National
Bank of New York, TD Securities, Inc., an affiliate of Toronto
Dominion Bank and Cowen & Company. The relationship with Ernst &
Young also encompasses institutional consulting, Allocation
Manager(TM) services, and MARS. Additionally, PMC distributes Private
Wealth Management(TM) under its own name through thirty financial
planning broker-dealers and investment advisors representing more
than 10,000 registered sales professionals. To support the sales
process, the Company employs a staff of marketing representatives.
The Company has a joint marketing agreement with Schwab
Institutional Management ("Schwab"), pursuant to which a
specialized version of the Private Wealth Management(TM) program is
marketed to independent investment advisors who utilize the
services of Schwab. Currently, PMC is servicing Institutional
Channels in the United States, Canada and seven Latin American
countries with many institutional money managers participating in
the Company's wrap programs.
Allocation Manager(TM)
Allocation Manager(TM), introduced in late 1995 and as an
operating product during the third quarter of 1996, is a
Windows-based software program. The program is designed to aid in
the solicitation, sale, and servicing of mutual funds, variable
annuities, offshore investments and other selected financial
products. A highly-flexible program based upon theories of mass
customization, Allocation Manager(TM) has the capability of being
tailored for use by specific financial distribution channels having
their own proprietary product mix. This product assists in guiding
a wide range of investors through the complex process of choosing
an appropriate combination of mutual funds.
<PAGE>
Allocation Manager(TM) was built with the intention of being
customized by PMC's existing and prospective clients, many of whom
have proprietary families of mutual funds. As a result, Allocation
Manager(TM) supports a broad range of financial products and programs,
both domestically and globally, and can be customized to the
individual requirements of Institutional Channels. Customized
versions of Allocation Manager(TM) have been created for Chase
Investment Services Corp., Ernst & Young LLP, Republic National
Bank of New York, CIGNA Financial Services, MONY Securities
Corporation, Texas Commerce Bank and others.
A version of Allocation Manager(TM), called Fund Counselor , is
being marketed by NFCS. Under the Fund Counselor program, NFCS
will provide brokerage, clearing and custodial services and will
make the program available to its more than 225 bank, insurance and
financial planning broker/dealers. Allocation Manager(TM) is being
distributed through the Schwab system pursuant to a joint marketing
agreement. It is also being made available to correspondents of
EVEREN Clearing Corp.
Based upon (i) the substantial growth in the mutual funds
industry over the last 15 years, (ii) investor trends in mutual
fund investment and (iii) industry expectations, management
believes PMC's existing expertise and operations will permit a
smooth integration of this new program with existing products and
services offered by the Company while expanding and diversifying
the distribution channels for such products and services. Because
the program also provides educational tutorials, training modules
and dynamic portfolio modeling, Allocation Manager(TM) is much more
than simply a "front-end" sales tool. It can be positioned as a
technology sale with licensing revenues to PTS or it can be
positioned, subject to applicable regulatory guidelines and
restrictions, as an investment management tool, allowing PMC to
receive asset-based pricing.
Managed Account Reporting Services
Management believes that as a result of the growth within the
fee-based financial advisory segment of the industry over the past
ten years, many institutions have been seeking ways to improve
their reporting capabilities. The Company's MARS is used by
financial professionals in providing customers with the
increasingly important value-added services of portfolio
performance reporting and cost-based tax accounting. Essentially a
service bureau/data processing service, MARS leverages a PMC core
competency, allowing PMC to sell, on a stand alone basis, its
monthly and quarterly reports.
MARS provides detailed statements that include comprehensive
management reporting, account reconciliation and cost-based
accounting on a full-accrual basis. In addition, PMC provides full
color, quarterly performance reports detailing the investor's
objectives and performance of each investment strategy, money
manager or mutual fund, as well as the entire portfolio.
During 1996 PMC entered into an agreement with National
Financial Services Corporation, an affiliate of Fidelity Management
and Research ("NFSC"), to manage NFSC's newly created performance
reporting service called MAPS Tool Box ("MAPS"). MAPS provides
NFSC's correspondents with access to high quality, quarterly
performance reports and tax lot, cost basis and fully accrued
account statements. This service is targeted at high net worth
investors managed by financial planners and financial consultants
who use the securities clearing services of NFSC. MARS is also
being marketed within the Schwab system to the many investment
advisors that use Schwab's custodial services. Effective October
1997, the Company began providing MARS reports to clients of Scotia
McLeod, Inc. through a third party vendor agreement with Infowise,
Inc.
Style Manager Asset Management Products
Style Manager is a family of discretionary asset management
products which recommend strategies for the periodic rebalancing of
both institutional and retail investor portfolios. Through the use
of Style Manager , clients portfolios are periodically rebalanced
through the rotation of U.S. equity styles (i.e., growth and value
companies and large, mid and small capitalization companies), with
the intention of capturing superior performance that results from
taking advantage of certain cyclical sector inefficiencies in the
U.S. equity markets. Recommended shifts in equity allocations are
designed to move assets away from under-performing sectors into
those likely to perform best. Although Style Manager recommends
shifts within the U.S. equity markets, it does not recommend shifts
between macro asset
<PAGE>
classes such as stocks, bonds and cash, thus
the program is not a market timing program as the term is generally
used. Currently, three Style Manager versions have been developed.
Portfolio Brokerage Services, Inc.
Portfolio Brokerage Services, Inc. ("PBS"), a wholly owned
subsidiary of the Company, is registered as a broker/dealer with
the NASD and in all U.S. jurisdictions. PBS executes security
transactions for certain of PMC's privately managed account
programs on behalf of its customers through the customer s
custodian bank on a delivery vs. payment basis. A self-clearing
broker/dealer, substantially all trading activity of PBS is
unsolicited and initiated by the independent money managers used in
PMC's Private Wealth Management(TM) program. Managers make all buy
and sell decisions and place most orders with PBS for execution.
PBS executes substantially all trades through third-party market
makers. All transactions are effected on an agency basis.
Portfolio Technology Services, Inc.
Portfolio Technology Services, Inc. ("PTS"), a wholly owned
subsidiary of the Company, is a technology company dedicated to
assisting the Company in providing innovative products to the
financial services industry. PTS leverages the product knowledge
of PMC to design and build integrated product solutions to meet the
challenge of consolidating products and pricing in multiple
segments of the financial services industry. As its primary
contribution to the Company, PTS has developed the sales
workstation platform used for Allocation Manager(TM) and communication
interfaces to multiple custodial systems. PTS licenses its
technology and provides customization services in support of the
Company's relationship with its Institutional Channels. The
Company estimates that it has spent approximately $1.1 million for
software development activities in its last two fiscal years. In
some cases, customers may bear the cost of such activities directly
when software is customized for their particular requirements.
Payments by customers for this purpose during the last two fiscal
years are not material.
PMCIS Investment Services, Inc.
PMCIS Investment Services, Inc. ("PMCIS"), formerly ADAM
Investment Services, Inc., was formed in 1980 to provide
investment consulting services to institutional investors. PMCIS's
primary services are based around mutual funds. PMCIS offers 17
model portfolios constructed using no-load mutual funds and funds
available at net asset value. PMCIS's mutual fund portfolios are
offered as options for use by 401(k) plans and with several
insurance companies within variable life and variable annuity
contracts.
Today PMCIS offers independent financial advisers a variety of
investment services for use in helping their clients reach their
financial goals. With respect to standard fee assets under
management, PMCIS's services typically are provided for a fee that
is based on a percentage of assets under management. Fees based on
managed assets typically range from 100 to 185 basis points per
year. Fees are reduced as accounts reach certain breakpoints.
Occasionally fees are established on a negotiated basis. PMCIS
collects all fees directly from client accounts and pays the
adviser's portion to the adviser. In certain instances PMCIS does
not collect the adviser's portion of the fee and the adviser
invoices the client directly.
The services PMCIS provides are described below:
Mutual Fund Portfolios. PMCIS offers 17 model portfolios
constructed using no-load mutual funds and funds available at net
asset value. These "standard" portfolios consist of five global
tactical asset allocation portfolios, five global strategic asset
allocation portfolios and seven asset class portfolios that
concentrate on narrow asset class groups. PMCIS will also
construct customized mutual fund portfolios for larger accounts.
Socially Responsible Portfolios. PMCIS offers five strategic
asset allocation portfolios constructed using mutual funds that
invest in companies that are identified as operating in a socially
responsible manner. These portfolios are targeted to individual
investors as well as endowments and foundations that support social
or religious causes.
<PAGE>
401(k) Services. PMCIS offers its mutual fund portfolios as
options for use by 401(k) plans. PMCIS has developed marketing,
enrollment and educational material for use in the 401(k) market.
PMCIS has also developed relationships with custodial and record
keeping firms that work with advisers using PMCIS's 401(k) services.
Insurance and Annuity Services. PMCIS has developed
relationships with several insurance companies under which it
provides asset allocation and portfolio construction services
within variable life and variable annuity contracts. Financial
advisers can use these contracts in conjunction with PMCIS's mutual
fund portfolios to manage an investor's assets in a consistent
manner both inside and outside of insurance policies.
Private Label Program. PMCIS has developed and is initiating
a "private label" program that will allow advisers to determine the
asset allocation strategy and select the mutual funds used in
constructing client portfolios. This program will give advisers
more involvement in, and influence over, investment strategy and
portfolio construction.
Marketing, Education and Training Services. PMCIS provides
advisers with a variety of marketing materials, newsletters, slide
presentations, software and proposal preparation services that
support the advisers' efforts to market PMCIS's services. PMCIS
also supports advisers' marketing efforts through field wholesalers
and in-house customer service personnel. PMCIS educates advisers
in its investment approach and trains advisers how to market its
services through visits to the advisers' offices and through
periodic regional seminars.
Back-Office and Administrative Services. PMCIS assists
advisers in opening client accounts and monitors and trades client
portfolios on a discretionary basis. PMCIS provides comprehensive
quarterly reports to all clients.
Distribution. PMCIS distributes its services through six
marketing representatives who are supported by five account
servicing representatives. Marketing representatives recruit new
advisers to use PMCIS's services and provide training and marketing
support to advisers on an ongoing basis. Account servicing
representatives support the efforts of the marketing
representatives and provide customer assistance to advisers.
In 1995, PMCIS acquired Optima Funds, Inc. ("Optima"), a
registered investment advisor. Optima was merged into PMCIS in
December 1997. At the time of the merger, Optima provided mutual
fund wrap services to clients with assets under management of
approximately $100 million. PMCIS's current Chief Investment
Officer was the President and Chief Investment Officer of Optima.
Significant Relationships
Most of the Company's gross revenues are generated by fees
from the Company's Private Wealth Management(TM) investment advisory
programs. The programs are marketed and sold by Institutional
Channels and Independent Channels either under the Company's name
or under the "private label" of such channel. The Company has no
reason to believe that its current investment advisory
relationships will not continue to generate revenues for the
Company consistent with prior years.
Pursuant to a joint marketing agreement between the Company
and Schwab, a specialized version of the Private Wealth Management(TM)
program is being marketed as an optional additional service to
independent registered investment advisors ("RIAs") who utilize the
services of Schwab. Schwab provides custody and clearing services
for independent RIAs. With respect to Schwab Institutional
Management's RIA customers who determine to use the Company's
products and services, Schwab will provide brokerage, custody and
securities clearing services while PMC will provide asset
allocation, money manager due diligence, monthly and quarterly
reporting, sales support and training.
In July 1997, the Company and PTS entered into agreements with
Ernst &Young LLP to provide institutional consulting, Private
Wealth Management(TM), Allocation Manager(TM) and MARS reporting
services. Under the agreement, the Company provides end-to-end
investment advisory services to Ernst & Young LLP in support of its
advisory and reporting services to clients. Also in 1997, the
Company entered into agreements with Republic National Bank of New
York to provide customized software, advisory and reporting
services in connection with both mutual fund and privately managed
accounts.
<PAGE>
The Company targets other means of distribution, and has
executed selling agreements with new Institutional Channels for its
products. These new relationships include CIGNA Financial
Services, Inc., Cowen & Company, Texas Commerce Bank and EVEREN
Clearing Corp.
Competition
In offering services through its Institutional and Independent
Channels, the Company competes with other firms that offer wrap and
managed account programs. These distribution channels in turn
compete with banks, insurance companies, large securities brokers
and other financial institutions which offer wrap or managed
account programs to the public. The Company believes that firms
compete in this market primarily on the basis of service, since the
wrap fees charged by others are similar to those charged by the
Company. While a number of firms each provide a portion of the
services provided by the Company through its Institutional
Channels, the Company believes it is one of a few firms offering
integrated services to customers. Firms that compete with the
Company in providing services to its Independent Channels and
Institutional Channels have more financial resources and greater
recognition in the financial community than the Company.
Competitors may reduce the fees charged for wrap or managed account
programs or pursue other competitive strategies that could have an
adverse impact on the Company.
The Company's success is in large part a function of the
Independent Channels and Institutional Channels through which its
services are offered to others. There are many alternatives to
wrap programs that are being offered to the public, such as life
cycle funds, asset allocation funds, portfolio strategies and
third-party asset allocation services, and these services are
competitive with those offered by the Company. As financial
institutions continue to grow and build in-house asset
administration service capabilities, some will be able to provide
these services internally rather than using outsourcing providers.
Competitors may succeed in developing products and services that
are more effective than those that have been or may be developed by
the Company and may also prove to be more successful than the
Company in developing these products and marketing these services
to third-party asset managers.
The Company believes that there will be increasing demand in
the financial services industry for the delivery of products and
services electronically or on-line. At present, the Company
delivers or makes available certain of its products and services to
selected clients through the Internet or electronically. The
Company's products were developed with Internet delivery in mind
and the Company anticipates that a modest investment of resources
over the coming year will result in significantly broader
availability of its products and services on-line. There can be no
assurance, however, that the Company will be able to keep pace with
its competitors in the electronic delivery of services.
Government Regulation
The Company's business falls entirely within the securities
industry, an industry which is heavily regulated by the federal and
state governments. New regulatory changes affecting the securities
industry could adversely affect the Company's business. In
addition, as investment advisers and a broker/dealer, the Company s
subsidiaries are subject to regulation by the Commission, the NASD
and state regulatory agencies. Consequently, the Company could
become subject to restrictions or sanctions from the Commission,
the NASD or such state regulatory agencies. It is impossible to
predict the direction future regulations will take or the effect of
such regulations on the Company's business.
Year 2000
Many existing computer programs use only two digits to
identify a specific year and therefore may not accurately recognize
the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or
at the year 2000. Due to the Company's dependence on computer
technology to operate its business, and the dependence of the
financial services industry on computer technology, the nature and
impact of Year 2000 processing failures on the Company's business
could be material. The Company is currently modifying its computer
systems in order to enable its systems to process data and
transactions incorporating year 2000 dates without material errors
or interruptions.
The success of the Company's plan depends in large part on
parallel efforts being undertaken by other entities, including
third party vendors, with which the Company's systems interact and
therefore, the Company is taking steps to determine the status of
these other entities' Year 2000 compliance. The Company is
formulating contingency plans to
<PAGE>
be implemented in the event that
any other entity with which the Company's systems interact, or the
Company itself, fails to achieve timely and adequate Year 2000
compliance.
The Company currently expects that costs to comply will not be
material since these costs will be born substantially by outside entities.
These costs exclude the time that may be spent by management and
administrative staff in guiding and assisting the information
technology effort described above or for bringing internal systems
into Year 2000 compliance.
Corporate History
SEC Investigation and Settlement
During November 1993, the staff of the Commission began an
examination of PMC and in January 1994, the Commission issued a
"Formal Order of Investigation." In April 1994, the staff of the
Commission made a formal enforcement recommendation against PMC,
its President Mr. Kenneth S. Phillips and its former Chief
Executive Officer, Mr. Marc Geman. Mr. Geman terminated his
association with the Company to pursue other interests at the
closing of the initial Bedford Loan in July 1995. See "-- --Bedford
Financing" and "-- --Phillips & Andrus, LLC; KP3, LLC." The
recommendation alleged that PMC and such officers had violated
anti-fraud provisions of the Securities Act, the Exchange Act and
the Investment Adviser's Act of 1940, and the record keeping
requirements of the Exchange Act.
Over the course of the following two years the Company
committed significant resources to its defense and the defense of
its officers. The case addressed issues associated with
disclosures and standards of "best execution" in advisory and wrap
programs. The investigation adversely affected the Company's new
business development activities during the period, as very few
firms were willing to develop relationships with the Company while
an enforcement recommendation was pending.
On June 27, 1996, PMC and Mr. Phillips announced that they had
reached a settlement agreement with the Commission. Pursuant to
the settlement agreement, PMC and Mr. Phillips, without admitting
or denying the Commission's allegations, consented to an Order
whereby PMC agreed to engage a compliance executive and to refund
net principal trading profits together with prejudgment interest
thereon, in an amount to be determined by an independent
accountant. The net trading profits were determined to be
$457,000, plus $146,000 of interest through the date of payment.
The refund process was completed in May 1997. In addition, Mr.
Phillips agreed to a censure and payment of a $25,000 fine.
On June 27, 1996, administrative proceedings were instituted
against Mr. Geman, as an individual, by the Commission in
connection with the above described investigation. A hearing was
held before an administrative law judge on November 5 and 6, 1996.
On August 5, 1997, the administrative law judge issued his initial
decision finding that, although the Company met its obligations to
its clients to provide "best execution", Mr. Geman aided, abetted,
and caused violations by the Company of the anti-fraud provisions
of the federal securities laws and books and records violations of
the Securities Exchange Act of 1934. The decision barred Mr. Geman
from associating with any broker or dealer, investment advisor,
investment company, or municipal securities dealer, with the right
to re-apply in eighteen months. Mr. Geman was ordered to cease and
desist from committing or causing violations of the securities laws
and was ordered to pay civil money penalties in the amount of
$500,000. Both Mr. Geman and the Commission have appealed the
decision.
Bedford Financing
In July 1995, the Company entered into a transaction with
Bedford Capital Financial Corporation ("Bedford") pursuant to which
Bedford loaned $1.2 million to the Company and received an option
to loan up to an additional $1.8 million to the Company for a
specified period of time and pursuant to certain call provisions.
Each dollar loaned carried a ten-year warrant to purchase one share
of the Common Stock at an exercise price of $4.00 per share. In
connection with this funding and the related shareholder and
investment agreements, Bedford received certain rights including,
but not limited to, the right to elect two of the Company's five
directors, the right to receive options that mirrored certain
issuances or option grants by the Company, and a security interest
in all assets of the Company and its subsidiaries.
Contemporaneously with the closing of the July 1995 transaction
with the Company, Bedford also purchased 1.0 million shares of
Common Stock from Mr. Geman, the former chief executive officer of
the Company who was a subject of the
<PAGE>
investigation by the staff of
the Commission. Between July 1995 and July 1996, the Company
obtained the full $3.0 million financing from Bedford and certain
assignees of Bedford (the "Bedford Loans").
In addition, the Company granted to Bedford certain other
rights in connection with future debt and equity financings which
included a right of first negotiation regarding future fundings, a
30-day exclusive negotiation period, and a right of first refusal
to match unsolicited offers for financing. The Company also agreed
to pay a $100,000 annual monitoring fee to Nevcorp Inc., which is
owned by J.W. Nevil Thomas, who has been designated by Bedford to
serve on the Company's Board of Directors.
The Company's relationship with Bedford was restructured, and
the Nevcorp agreement was terminated, in December 1996. See "--December
1996 Restructuring."
December 1995 and June 1996 Offerings
In December 1995 and January 1996, the Company issued a total
of 482.5 units through a private offering (the "December 1995
Offering"), with each unit consisting of a convertible promissory
note with a principal amount of $1,000 and a warrant to purchase
250 shares of common stock at an exercise price of $4.00 per
share. During June 1996 the Company issued an additional 1,017.5
units through another private offering (the "June 1996 Offering")
under substantially the same terms. These private offerings were
issued primarily to employees, business associates and affiliates
of the Company or Bedford. The purchasers of units in the December
1995 and June 1996 Offerings received registration rights with
respect to the shares of Common Stock underlying the warrants.
Phillips & Andrus, LLC; KP3, LLC
Phillips & Andrus, LLC, a Colorado limited liability company
("P&A"), was formed in July 1995 to acquire 410,961 shares of
Common Stock from Mr. Geman in exchange for a promissory note
issued to Mr. Geman in the amount of $2,015,000. The promissory
note was secured by the Common Stock acquired. While Mr. Phillips,
President and Chief Executive Officer of the Company, and David L.
Andrus, Executive Vice President of the Company, were the members
of P&A, substantially all of the membership interests in P&A were
owned by Mr. Phillips. The Company and Messrs. Phillips and Andrus
believed that it would be in the Company's interest that Mr.
Geman's involvement with the Company and direct ownership interest
in Common Stock be eliminated. In October 1996, affiliates of
Bedford loaned P&A funds to make the initial interest payments on
the note owed to Mr. Geman. In December 1996, after notifying its
shareholders of the proposal to do so, the Company loaned a total
of $250,000 to P&A to repay principal owed under the promissory
note to Mr. Geman. These loans permitted P&A to avoid defaults
under the promissory note owed to Mr. Geman.
In January 1997 P&A was liquidated and the assets of P&A,
consisting of the 410,961 shares of Common Stock, were transferred,
subject to certain liabilities, to KP3, LLC, a Colorado limited
liability company ("KP3"), the members of which are Mr. Phillips
and a custodian for Mr. Phillips' son. Mr. Phillips owns
substantially all of the membership interests in KP3. Also in
January 1997, KP3 obtained a bank loan in the amount of $1,750,000
for a term of approximately 12 months (the "KP3 Loan"), the
proceeds of which were used (i) to repay the loans made to P&A by
the Company and certain affiliates of Bedford, and (ii) to prepay
the balance of the principal and all interest owing under the
promissory note to Mr. Geman. The Company pledged certain
collateral for the KP3 Loan, valued at approximately $1,890,000,
and KP3 agreed to reimburse the Company for any amount paid by it
toward the KP3 Loan. KP3's reimbursement obligation is secured by
a pledge of all 410,961 shares of Common Stock held by KP3. The
pledge by the Company to the bank to secure the KP3 Loan permitted
the promissory note to Mr. Geman to be paid and to eliminate the
possibility that Mr. Geman could reacquire a substantial stock
ownership in the Company. Through March 31, 1998, the Company has
lent approximately $190,000, including interest to KP3 specifically
to service interest payments on the KP3 loans. KP3 has agreed to
reimburse the Company for all amounts paid by the Company on the
loan or for collateral applied to the KP3 Loan, including interest
at an annual rate of 9% and has granted the Company a security
interest in the KP3 Shares. Such loan was restructured through a
different bank on October 1, 1997 and April 15, 1998. In
connection therewith, the Company has provided two cash collateral
guarantees totaling $1,750,000 and the Company retains the 410,961
KP3 Shares as collateral. The KP3 loans are due December 31, 1998.
<PAGE>
Bedford and certain of its affiliates have an option,
exercisable through July 26, 2000, to acquire a total of 83,750
shares of Common Stock currently owned by KP3 for an aggregate
purchase price of $410,637.85, increasing at a rate of 9% per annum
subsequent to July 27, 1995.
November 1996 Bridge Loan
In November 1996, the Company borrowed $250,000 (the "November
1996 Bridge Loan") to fund its working capital requirements pending
closing of the December 1996 Offering. See "-- --December 1996
Offering." Half of the loan was provided by Keefe, Bruyette &
Woods, Inc. ("KBW"), placement agent in the December 1996 Offering,
and the balance by certain members of management of the Company and
a subsidiary of Bedford. The lenders received five-year warrants
to purchase an aggregate of 6,250 shares of Common Stock. The
warrants have an exercise price of $6.50 per share. The lenders
received registration rights with respect to the Common Stock to be
issued upon exercise of the warrants. The November 1996 Bridge
Loan was repaid in December 1996 from the proceeds of the
December 1996 Offering.
December 1996 Offering
In December 1996 the Company completed a private placement of
1,294,250 shares of Common Stock at a price of $8.50 per share (the
"December 1996 Offering"). A portion of the proceeds of the
December 1996 Offering were used (i) to repay interest due and
owing on the promissory notes issued in connection with the
December 1995 and June 1996 Offerings, including the notes held by
the father and brother of Mr. Phillips, the Company's Chief
Executive Officer, Mr. Andrus, the Company's Executive Vice
President, and certain employees of the Company, (ii) to repay
interest due and owing under the Bedford Loans, (iii) to repay a
portion of the principal on the Bedford Loans and (iv) to repay the
November 1996 Bridge Loan (including the notes held by
Mr. Phillips, Mr. Andrus and certain other members of the Company's
management).
December 1996 Restructuring
Simultaneous with the closing of the December 1996 Offering,
the Company completed a restructuring of its debt and a partial
restructuring of its outstanding Preferred Stock. The
restructuring involved (i) the payment of all outstanding interest
on the Bedford Loans, the repayment to Bedford and its assignees of
$1,976,250 of outstanding principal on the Bedford Loans, the
exercise by Bedford and its assignees of warrants to purchase
255,937 shares of Common Stock and the delivery by Bedford and its
assignees of canceled promissory notes in the amount of $1,023,750
in satisfaction of the exercise price of the warrants, the
cancellation of the remaining warrants to Bedford and its
assignees, and the issuance to Bedford and its assignees of new
warrants to purchase up to 37,500 shares of Common Stock at an
exercise price of $8.50 per share; (ii) the issuance of 375,000
shares of Common Stock upon the exercise of warrants issued to
investors in connection with the Company's private placement of
promissory notes and warrants in the December 1995 and June 1996
Offerings, the delivery of canceled promissory notes in the
aggregate principal amount of $1,500,000 in satisfaction of the
exercise price of such warrants, the payment by the Company of all
outstanding interest due and owing on such notes as of the exercise
date and the issuance to the holders of such warrants of new
warrants to purchase up to 37,500 shares of Common Stock; (iii) the
repayment of the November 1996 Bridge Loan, and (iv) the exchange
of 173,120 shares of Preferred Stock for 59,510 shares of Common
Stock, resulting in a reduction in the Company's cumulative
dividend obligation to the holders of Preferred Stock from $583,576
as of September 30, 1996 to $322,700 as of December 31, 1996. As
part of the restructuring, in January 1997, the Company negotiated
the exchange of 37,715 shares of Preferred Stock for 12,965
shares of Common Stock. The new warrants issued by the Company to
Bedford and others pursuant to clauses (i) and (ii) are referred to
as the "New Warrants."
The New Warrants are exercisable over a period of five years,
at an exercise price of $8.50 per share. Registration rights were
granted with respect to the Common Stock received upon the exercise
of the old warrants and the shares of Common Stock underlying the
New Warrants. The New Warrants contain adjustment provisions
relating to the exercise price per share and the number of shares
of Common Stock to be issued upon their exercise in the event of
issuances of additional shares of Common Stock (including through
the issuance of options, rights or warrants to purchase Common
Stock or securities convertible into Common Stock) by the Company
at a price below market price, certain extraordinary dividends and
distributions on the Common Stock, stock splits or other
reclassifications of the
<PAGE>
outstanding shares of Common Stock, and
any merger, consolidation or reorganization involving the Company
or a transfer by the Company of substantially all of its assets or
properties.
PMCIS Acquisition and Financing
On September 24, 1997, the Company completed the acquisition
of PMCIS, a financial services and investment advisory company
headquartered in Atlanta, Georgia. PMCIS has provided investment
consulting services to institutional investors since 1980. PMCIS's
primary services are based around mutual funds. PMCIS offers 17
model portfolios constructed using no-load mutual funds and funds
available at net asset value. These "standard" portfolios consist
of 5 global tactical asset allocation portfolios, 5 global
strategic asset allocation portfolios and 7 asset class portfolios
that concentrate on narrow asset class groups. PMCIS also has 5
strategic asset allocation portfolios constructed using mutual
funds that invest in companies that are identified as operating in
a socially responsible manner. PMCIS's mutual fund portfolios are
also offered as options for use by 401(k) plans and with The
Hartford Insurance Company within a variable life contract. PMCIS
had one wholly-owned subsidiary, Optima, which it acquired in 1995.
Optima provides mutual fund wrap services to clients. Optima was
merged into PMCIS in December, 1997.
The agreement providing for the acquisition of PMCIS by the
Company provided that the Company would acquire all of the
outstanding capital stock of PMCIS for up to $9.0 million in cash
and up to $200,000 in Common Stock if certain conditions are met
over time. In addition, the Company agreed to assume the normal
operating liabilities of PMCIS at closing of the acquisition,
estimated to be approximately $1.6 million. At the closing of the
PMCIS transaction, the Company paid $5,000,000 in cash and agreed
to make two earn-out payments on the first and second anniversary
dates of the closing. The first earn-out payment will equal 1.0%
of PMCIS's standard fee assets under management in excess of $500
million, determined on the one-year anniversary of the closing of
the PMCIS acquisition, not to exceed $2.0 million, plus interest
thereon at a rate of 8.75%. The second earn-out payment will equal
1.0% of PMCIS's standard fee assets under management in excess of
$700 million, determined on the two-year anniversary of the closing
of the PMCIS acquisition, not to exceed $2.0 million. PMCIS is now
a wholly owned subsidiary of the Company, and the Company
anticipates that PMCIS will continue to operate as a wholly owned
subsidiary of the Company in the near future.
In connection with the PMCIS acquisition, on September 24,
1997, the Company sold 1,220,749 shares of its Common Stock in the
PMCIS Private Placement at a price of $6.00 per share. The
Purchases received registration rights with respect to the Common
Stock purchased. The proceeds from this transaction, after
deducting expenses relating to the issuance of the Common Stock,
were approximately $6,500,000, of which the Company used $5,000,000
to purchase PMCIS at the PMCIS closing and a substantial amount of
the balance for employee severance, relocation, and related
expenses associated with the closing of PMCIS's Atlanta
headquarters.
Properties
The Company leases approximately 20,000 square feet of office
space for its corporate headquarters in the Qwest Tower at 555 17th
Street, Denver, Colorado pursuant to a lease which expires in
2001. The Company pays approximately $20,000 per month for this
office space. PMCIS subleases approximately 12,000 square feet of
office space in the Galleria Plaza, 100 Galleria Parkway, Suite
1200, Atlanta, Georgia, pursuant to a sublease which expires April,
1999. PMCIS pays approximately $24,000 per month for this office
space. On January 21, 1998, PMCIS entered into a sublease
agreement for its Atlanta office space. Pursuant to the agreement,
PMCIS sublet a substantial portion of the above described office
space for: $4.25 per square foot until February 17, 1998; $8.50 per
square foot from February 17, 1998 until March 31, 1998; and $17.00
per square foot from April 1, 1998 until the termination of the
lease in April, 1999. PMCIS still occupies the remaining space and
will remain responsible for the balance of the lease payments not
covered by such sublease.
Employees
The Company and its subsidiaries has a staff of 89 persons as
of March 31, 1998, all full-time employees, including approximately
55 professionals. None of the Company's employees are subject to a
collective bargaining agreement. The Company's management
considers the Company's employee relations to be good.
<PAGE>
Legal Proceedings
In early June 1997, the Company received a letter from an
attorney representing a former employee which threatened litigation
relating to a dispute over such former employee's remuneration by
the Company unless the Company agreed to settle with him by a
specified date. The Company responded to the letter and stated its
position that no amounts are owed. By correspondence from The
National Association of Security Dealers ("NASD") dated
December 19, 1997, PMC was notified that the matter was submitted by
the employee to the NASD for arbitration. The employee is seeking
damages for lost earnings from his prior employer, lost commissions
from PMC and other damages, totaling $1,190,000. PMC has responded
to the NASD Arbitration demand by denying that the NASD has
jurisdiction over the matter and seeking to have the matter
dismissed. The matter has been transferred to the NASD's regional
office in Atlanta, Georgia. The Company believes that the claims
described in the NASD Arbitration notice are without basis and
intends to defend the matter vigorously.
In October 1997, the Company notified its then Executive Vice
President, Mr. David Andrus, that under the terms of his
employment agreement, his employment with the Company as an officer
and employee would cease effective January 11, 1998. The
employment agreement stipulated that Mr. Andrus was to receive
severance payments in an amount equal to his base salary, payable
ratably on a semi-monthly basis for up to one year after the date
of his separation from the Company. Such payments would cease
sooner in the event Mr. Andrus were to gain employment affording
him comparable compensation. The Company believes there is
sufficient basis to dispute Mr. Andrus' right to receive severance
payments. The Company ceased paying Mr. Andrus in February 1998,
retained legal counsel regarding this matter and has notified Mr.
Andrus that the Company disputes his right to receive such
payments. An attorney for Mr. Andrus has made demand on the
Company for payments under the agreement. The Company intends to
vigorously defend this matter.
The Company is not aware of any other material legal
proceedings or investigations currently pending or threatened
against the Company. See "Management--Employment Agreements."
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding
the Company's directors and executive officers:
Name Age Position
Kenneth S. Phillips 46 President, Chief Executive
Officer and Director
Scott A. MacKillop 46 Executive Vice President, Chief
Operating Officer and Director
Stephen M. Ash 40 Chief Financial Officer and
Treasurer
Maureen E. Dobel 39 General Counsel, Corporate
Secretary and Director
J. W. Nevil Thomas 59 Chairman of the Board of
Directors
D. Porter Bibb 60 Director
Emmett J. Daly 37 Director
Richard C. Hyde 52 Director
Kenneth S. Phillips--President and Chief Executive Officer,
Director. Mr. Phillips founded PMC in 1986 and serves as the
President and Chief Executive Officer of the Company. Mr. Phillips
is responsible for corporate direction, product development and
strategic planning. He was co-founding participant in the Wilshire
cooperative in 1986 (associated with the institutional consulting
firm Wilshire Associates). He served as Chairman of the
Publications Committee of the Investment Management Consultants
Association ("IMCA") in 1994 and 1995, as a member of IMCA s
officer and director Nominating Committee in 1994 and 1996, and has
recently been elected to serve as a member of IMCA's Advisory
Council. IMCA is the investment consulting industry's principal
trade organization with more than 1,200 members, representing
virtually all the major national, regional and independent
consulting firms. Additionally, Mr. Phillips has been a guest
speaker for the International Association of Financial Planners,
the Investment
<PAGE>
Management Institute and the Institute for
International Research. Mr. Phillips received his education at
Colorado State University and holds numerous NASD license
designations.
Scott A. MacKillop--Executive Vice President, Chief Operating
Officer, Director. Mr. MacKillop joined the Company in September
1997 as a Director, Executive Vice President and the Chief
Operating Officer of the Company, and as President of PMCIS, the
Company's wholly owned subsidiary, as Chief Operating Officer of
Optima, a wholly owned subsidiary of PMCIS, and as a member of the
Boards of Directors of both PMCIS and Optima. Mr. MacKillop was
appointed to the Board of Directors on October 27, 1997. Mr.
MacKillop has been employed by PMCIS since 1992. From 1991 until
1992 Mr. MacKillop served as outside general counsel to PMCIS. Mr.
MacKillop received a B.A. degree from Stanford University in 1972
and a J.D. degree from George Washington University Law School in
1976.
Stephen M. Ash, CPA--Chief Financial Officer and Treasurer.
Mr. Ash joined the Company during the fourth quarter of 1997 as
Vice President Finance and Operations. In February, 1998 he was
named Treasurer and President of Portfolio Brokerage Services,
Inc., the Company's wholly owned subsidiary. He was named Chief
Financial Officer in March 1998. Prior to joining the Company,
from 1994 until 1997, Mr. Ash was a Senior Operations Manager for
Mees Pierson Trust Company, a division of Fortis, located in
Curacao, Netherlands Antilles. Mr. Ash has more than ten years
experience as a Certified Public Accountant, first as a Senior
Manager in the audit department of KPMG - Peat Marwick from 1986 to
1993, and then as a Senior Manager with Ernst & Young from 1993 to
1994, specializing in the audit of off-shore mutual funds,
partnerships, and other investment vehicles. Mr. Ash is a graduate
of The State University of New York with a B.S. in Business
Administration..
Maureen E. Dobel--General Counsel, Corporate Secretary and
Director. Ms. Dobel joined PMC in September 1995 as Corporate
Counsel and was named General Counsel and Corporate Secretary in
December 1995. Ms. Dobel was appointed to the Board on March 27,
1998. Prior to joining PMC, Ms. Dobel spent eight years in private
practice, specializing in securities, corporate, real estate and
transactional matters. Ms. Dobel received a B.A. degree from Drake
University in 1980 and J.D. degree from the University of
Nebraska--Lincoln College of Law in 1984.
J.W. Nevil Thomas--Chairman of the Board. Mr. Thomas has been
a Director of the Company since July 1995. Since 1970 Mr. Thomas
has served as President of Nevcorp, Inc., an investment and a
financial and management consulting firm. In addition, Mr. Thomas
is a director of Bedford Capital Financial Corporation (" Bedford")
and is Chairman of Bedford Capital Corporation, a subsidiary of
Bedford, whose principal business is merchant banking. In addition
to being a Director of the Company and of Bedford and its
subsidiary as described above, Mr. Thomas is a director of Gan
Canada Limited, Reliable Life Insurance Company, Pet Valu Inc.,
French Fragrances, Inc., Old Republic Insurance and several other
private Canadian and American companies. Mr. Thomas holds a B.B.
Com. from the University of Toronto, an M.A. in Economics from
Queens University, an M.B.A. from York University and is a
Chartered Financial Analyst.
D. Porter Bibb--Director. Mr. Bibb became a Director of the
Company in October 1995. Mr. Bibb is a Managing Director of
Ladenburg, Thalmann & Co., Inc., an investment banking firm. Prior
to joining Ladenburg in 1984, Mr. Bibb was a Managing Director of
Bankers Trust Company, involved in the start-up of their investment
banking operations. Prior to that time, he was Director of
Corporate Development for the New York Times. In addition to being
a Director of the Company, Mr. Bibb is a Director of East Wind
Group, Inc. Mr. Bibb has a B.A. in History, Economics and
Political Science from Yale University and engaged in graduate
studies at New York University, London School of Economics and
Harvard Business School.
Emmett J. Daly--Director. Mr. Daly became a Director of the
Company in February 1997. Mr. Daly is currently Senior Vice
President of Corporate Finance of Keefe, Bruyette & Woods, Inc., an
investment banking firm that Mr. Daly joined in 1987 as an
Associate in the Corporate Finance Department. Before that time he
spent two years as Credit Analyst followed by one year as an
Assistant Treasurer of Manufacturers Hanover Trust Company. Mr.
Daly received a B.A. in Economics from College of the Holy Cross
and his M.B.A from the Kenan Flager School of Business at
University of North Carolina, Chapel Hill.
Richard C. Hyde--Director. Mr. Hyde became a director of the
Company in July 1997. Mr. Hyde is President of Moreland Capital,
Inc., an asset management and investment consulting firm. He is
also a Principal in Vestor Associates, LLC, the general partner of
Vestor Partners, LP, a private equity investment fund. Prior to
his current
<PAGE>
affiliations, from 1970 to 1995 Mr. Hyde served in
investment/asset management positions with Ameritrust Company and
its successor organizations, Society Corporation and Key Corp.
From 1984 through 1993, he was Chief Investment officer. From 1993
through 1995, Mr. Hyde was the CEO of Society Asset Management and
Managing Director of Key Asset Management Holdings. Mr. Hyde holds
both a Bachelor of Science and MBA -- Finance from Miami University
of Ohio.
The Bylaws of the Company were amended in December 1996 to set
the number of members of the Board of Directors at seven. Under
subscription agreements with investors in the December 1996
Offering, those investors are entitled to designate one director
and one additional director is to be mutually acceptable to the
Company and such investors. The mutually acceptable director is
currently Emmett J. Daly, a Senior Vice President of KBW. The
director to be designated by the investors is Mr. Hyde.
Under a Shareholders Agreement dated December 1996 among
Bedford, the Company, Mr. Phillips, Mr. Andrus and KP3 (as
successor to P&A), (i) so long as Bedford holds at least 10% of the
Company's outstanding Common Stock, it is entitled to designate one
director, (ii) so long as Bedford holds at least 5% of the
Company's outstanding Common Stock, Bedford is entitled to
designate one additional director reasonably acceptable to Mr.
Phillips and (iii) Mr. Phillips is entitled to designate three
directors, including one member of senior management designated
after the date of the agreement. Mr. Thomas currently is the
director designated by Bedford. The director designated by
Bedford, acceptable to Mr. Phillips, currently is Mr. Bibb.
Mr. Phillips, Mr. MacKillop and Ms. Dobel are the three directors
Mr. Phillips is entitled to designate.
Compensation of Directors
During 1997, the Company did not pay its employee directors
for attending board meetings. Each of the three outside directors
received a $5,000 annual retainer and a $500 fee for each meeting
attended. The Company reimburses all of its directors for travel
and out-of-pocket expenses in connection with their attendance at
meetings of the Board of Directors. On February 28, 1997, Mr. Daly
was granted options to purchase 12,500 shares of Common Stock at an
exercise price of $10.00 per share. Such options expire five years
from the date of grant and vest 20% at such time as the average bid
and offer price for the Common Stock equals $10.00, $14.00, $18.00,
$22.00, and $26.00, respectively, for twenty consecutive trading
days. On July 9, 1997, Mr. Hyde was granted options to purchase
12,500 shares of Common Stock at an exercise price of $7.872 per
share. Mr. Hyde's options expire five years from the date of grant
and vest 20% at such time as the average bid and offer price for
the Common Stock equals $7.872, $11.872, $15.872, $19.872, and
$23.872, respectively, for twenty consecutive trading days. On
October 27, 1997, Mr. MacKillop was granted options to purchase
12,500 shares of Common Stock at an exercise price of $6.485 per
share. Mr. MacKillop's options expire five years from the date of
grant and vest 20% at such time as the average bid and offer price
for the Common Stock equals $6.485, $10.50, $14.50, $18.50, and
$22.50, respectively, for twenty consecutive trading days.
On March 27, 1998, Ms. Dobel was granted options to purchase
12,500 shares of Common Stock at an exercise price of $4.75 per
share. Such options expire five years from the date of grant and
vest 20% at such time as the average bid and offer price for the
Common Stock equals $4.75, $8.75, $12.75, $16.75 and $20.75,
respectively, for twenty consecutive trading days.
Committees of the Board of Directors
The Company's Board has established an Audit Committee, a
Compensation Committee and an Executive Committee. The Audit
Committee is composed of Messrs. Daly, Thomas and Phillips, two of
whom are independent directors. The functions of the Audit
Committee are to recommend to the Board the appointment of
independent auditors, to review the plan and scope of any audit of
the Company's financial statements and to review the Company's
significant accounting policies and other related matters.
The Compensation Committee consists of three independent
directors who are not employees of the Company. Messrs. Bibb, Daly
and Hyde currently serve as the members of the Compensation
Committee. The functions of the Compensation Committee are to make
recommendations to the Board regarding the compensation of
executive officers and to administer the Company's bonuses and
stock option plans, including, if approved, the Equity Incentive
Plan. It
<PAGE>
also makes recommendations to the Board with respect to
the compensation of the Chairman of the Board and the Chief
Executive Officer and approves the compensation paid to other
senior executives.
The Executive Committee consists of Messrs. Phillips,
MacKillop and Daly. The Executive Committee possesses the powers
and discharges the duties of the Board between meetings of the full
Board.
Executive Compensation
The following table provides certain information concerning
compensation paid by the Company and its subsidiaries to the
Company's Chief Executive Officer and to the three other executive
officers whose salary and bonus exceeded $100,000 in 1997 (the
"Named Executive Officers").
Summary Compensation Table
Long-Term
Annual Compensation Compensation
-------------------------- ------------
Securities
Fiscal Other Underlying
Name and Principal Salary Bonus Annual
Position Year ($) ($) Compensation Options(1)
- - ------------------------------------------------------------------------
Kenneth S. 1997 300,865 50,000 * 938
Phillips(2) 1996 252,000 - * 12,500
President, Chief 1995 228,124 - * -0-
Executive Officer
Scott A. MacKillop 1997 206,331(2) 75,750
Executive Vice
President & Chief
Operating Officer
David L. Andrus(4) 1997 292,500 50,000 -0-
Former Executive 1996 240,000 - 262,500
Vice President 1995 40,000 - -0-
Vali Nasr(5) 1997 191,456 20,360 -0-
Former Chief 1996 129,375 9,640 12,500
Financial Officer & 1995 126,475 -0-
Treasurer
(1) The shares of Common Stock to be received upon the exercise of
all stock options granted during the period covered by the Table.
(2) Mr. MacKillop joined the Company in September 1997, in
connection with the acquisition of PMCIS.
(3) Includes $150,000 in salary received in 1997 from PMCIS for
services rendered prior to its acquisition by the Company.
(4) Mr. Andrus' employment with the Company terminated effective
January 11, 1998.
(5) Mr. Nasr's employment with the Company terminated effective
January 30, 1998. Subsequently, Mr. Nasr served as a consultant
to the Company until mid-March 1998.
* Amount received was less than $50,000 or 10% of total salary and bonus
for the year.
During the year ended December 31, 1997, the Company granted
to the Named Executive Officers options to acquire a total of
76,688 shares of Common Stock as set forth in the following table.
<PAGE>
Option Grants in Last Fiscal Year
Name Number of % of Total ($/Share) Expiration
Shares Options Exercise Date
Underlying Granted to Price
Options Employees
Granted in
Fiscal
Year(4)
Kenneth S. Phillips 938(1) 0.6 6.485 12/31/2002
Scott A. MacKillop 62,500(2) 51.6 6.485 09/24/2003
12,500(3) 6.485 10/27/2002
750(1) 6.485 12/31/2002
_______________________
(1) Options were granted on December 31, 1997 and are fully vested.
(2) Options were granted on September 24, 1997 and vest ratably
20% per year over a five-year period commencing September 24, 1998.
(3) Options were granted on October 24, 1997; 2,500 options are
vested and 20% of the remainder vest each time the average bid
and asked price of the Common Stock equals $4.75, $8.75, $12.75,
$16.75 and $20.75, respectively, for twenty consecutive trading
days.
(4) Based on an aggregate of 146,826 options granted in 1997 to
employees of the Company, including the Named Executive Officers.
The following table sets forth certain information with
respect to the value of options held at December 31, 1997 by the
Named Executive Officers. The Named Executive Officers did not
exercise any options to purchase Common Stock during 1997.
Fiscal Year End Option Values
Name Number of Securities ($)Value of
Underlying Unexercised
Unexercised Options In-the-Money Options
at Year End at Year End (1)
------------------------ ----------------------
ExercisableUnexercisable ExercisableUnexercisable
------------------------ ----------------------
Kenneth S. Phillips 5,938 7,500 $12,500 $18,750
David L. Andrus 193,750(2) 0 $71,250 0
Scott A. MacKillop 3,250 72,500 $49 $1,088
Vali Nasr 12,500(3) 0 $31,250 0
(1) The closing price for the Common Stock as reported on the
Nasdaq National Market on December 31, 1997 (the last day of
trading in 1997) was $6.50. Value is calculated on the basis of
the difference between the option exercise price and $6.50,
multiplied by the number of shares of Common Stock underlying the
option.
(2) As of April 11, 1998, options to purchase 23,750 shares expired.
(3) As of April 30, 1998, options to purchase 12,500 shares wil expire.
Employment Agreements
The Company has employment agreements with Mr. Phillips, its
President and Chief Executive Officer, and PMCIS has an employment
agreement with Mr. MacKillop, the Executive Vice President and
Chief Operating Officer of the Company. In addition, the Company
had an employment agreement with Mr. Andrus, its former Executive
Vice President.
The employment agreement with Mr. Phillips is dated July 26,
1995 and is for a three-year term. Either party may terminate the
agreement upon 90 days' prior notice. The agreement provides for a
minimum salary of $240,000 ($300,000 if the Company has pre-tax
profits of at least $1,000,000), 40% of the annual bonus pool
(equal to 10% of the Company's pre-tax profits), a car allowance,
and participation in the Company's other benefit plans. Effective
January
<PAGE>
1, 1997, Mr. Phillips salary was increased to $300,000. If
the Company terminates the agreement without cause, it will be
obligated to make severance payments to Mr. Phillips in an amount
equal to two-years' compensation. In addition, the agreement
provides that any options granted to Mr. Phillips vest immediately
upon his death or upon a change in control of the Company.
The employment agreement with Mr. MacKillop is dated September
23, 1997, and is for a two-year term. PMCIS may terminate the
agreement at any time after the one-year anniversary of the date of
the agreement by giving six months' prior written notice. The
agreement provides for a minimum salary of $240,000, an annual
bonus of up to $50,000, options to acquire 62,500 shares of Common
Stock, and participation in the Company's other benefit plans.
The employment agreement with Mr. Andrus is dated July 26,
1995, was amended in December 1996 and was terminated effective
January 11, 1998. It provided for a three-year term ending
November 1998 terminable by either party upon 90 days' prior
notice. The agreement provided for a minimum salary of $240,000,
options to acquire 250,000 shares of Common Stock, and
participation in the Company's other benefit plans. Effective
January 1, 1997, Mr. Andrus salary had been increased to $300,000.
The agreement provided that all options granted to Mr. Andrus vest
immediately upon a change in control of the Company. On October
13, 1997, the Company notified Mr. Andrus that his affiliation with
the Company as an officer and employee would cease effective
January 11, 1998. The Agreement provided that, if Mr. Andrus were
terminated without cause, he would receive severance payments in an
amount equal to his base salary, payable ratably on a semi-monthly
basis for up to one year after January 11, 1998, the date of his
separation from the Company. Such payments would cease sooner in
the event Mr. Andrus were to gain employment affording him
comparable compensation. The Company believes there is sufficient
basis to dispute Mr. Andrus' right to receive severance payments.
The Company ceased paying Mr. Andrus in February 1998, retained
legal counsel regarding the matter and has notified Mr. Andrus that
the Company disputes his right to receive such payments. An
attorney for Mr. Andrus has made demand on the Company for payments
not made. The Company intends to vigorously defend this matter.
See "Business--Legal Proceedings."
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and related notes contain information
concerning beneficial ownership of the Company's Common Stock as of
March 31, 1998 by: (i) each person known by the Company to own
beneficially more than five percent of the Common Stock, (ii) each
director of the Company, (iii) each Named Executive Officer, and
(iv) all directors and executive officers of the Company as a
group. Unless otherwise indicated in the footnotes, each
stockholder has sole voting and investment power with respect to
shares listed in the table. The share amounts in this table
reflect shares of Common Stock issuable upon the exercise of
options and warrants exercisable within the next 60 days.
Name Address Number of Percent of
Shares Class
- - -------------------------------------------------------------------
Kenneth S. Phillips 555 Seventeenth 688,379(1) 14.2 %
Street, 14th Fl.
Denver, Colorado
80202
- - -------------------------------------------------------------------
Scott A. MacKillop 555 Seventeenth 8,750(2) *
Street, 14th Fl.
Denver, Colorado
80202
- - -------------------------------------------------------------------
Stephen M. Ash 555 Seventeenth 0 --
Street, 14th Fl.
Denver, Colorado
80202
- - -------------------------------------------------------------------
Maureen E. Dobel 555 Seventeenth 7,001(3) *
Street, 14th Fl.
Denver, Colorado
80202
- - -------------------------------------------------------------------
J.W. Nevil Thomas Scotia Plaza, 7,500(4) *
Suite 4712
40 King Street
West
Toronto, Ontario
M5H 3Y2
- - -------------------------------------------------------------------
D. Porter Bibb 540 Madison 5,000(5) *
Avenue
New York, New
York 10022
- - -------------------------------------------------------------------
Emmett J. Daly Two World Trade 52,500(6) 1.1
Center, 85th Fl
New York, New
York 10048
- - -------------------------------------------------------------------
Richard C. Hyde Moreland 2,500(7) *
Capital, Inc.
30050 Chagrin
Blvd., Suite 100
Pepper Pike,
Ohio 44124
- - -------------------------------------------------------------------
Vali Nasr(8) 4770 W. Easter 12,500(9) *
Ct.
Littleton,
Colorado, 80123
- - -------------------------------------------------------------------
David L. Andrus(10) 2554 Linden Drive 196,750(11) 3.6
Boulder, CO 80304
- - -------------------------------------------------------------------
Bedford Capital 2nd Floor, 742,812(12) 15.2
Financial Charlotte Hs.
Corporation Shirly Street,
Box N964
Nassau, Bahamas
- - -------------------------------------------------------------------
KP3, LLC 555 Seventeenth 410,961(13) 8.5
Street, 14th Fl.
Denver, Colorado
80202
- - -------------------------------------------------------------------
OCH ZIFF Capital 153 E. 53rd 466,666 9.6
Management Street, 43rd Fl.
New York, NY
10022
- - -------------------------------------------------------------------
Bay Pond Partners, c/o Wellington 365,833 5.6
L.P. Management
Company, L.L.P.,
75 State Street
Boston,
Massachusetts
02109
- - -------------------------------------------------------------------
Bay Pond Investors c/o Wellington 270,250 7.5
(Bermuda), Ltd. Management
Company, L.L.P.,
75 State Street
Boston,
Massachusetts
02109
- - -------------------------------------------------------------------
Wheatley Partners, 80 Cutter Mill 401,916 8.3
L.P. Road, Suite 311
Great Neck, New
York 11021
- - -------------------------------------------------------------------
All Officers and
Directors as a . . . . . . . . 771,630 15.68
group (8 persons) . . . . . . . .
. . . . . . . . . . . . . . . . .
- - -------------------------------------------------------------------
* Less than 1%.
<PAGE>
(1) Includes 410,961 shares owned by KP3, of which Mr. Phillips is
the managing member and has the controlling ownership interest
and 6,375 shares underlying presently exercisable warrants.
(2) Includes 2,500 shares underlying presently exercisable options.
(3) Includes 7,001 shares underlying presently exercisable options.
(4) Includes 5,000 shares underlying presently exercisable options
and 2,500 shares owned by Mr. Thomas' spouse, Suzanne E. Thomas.
Does not include shares owned by Bedford of which Mr. Thomas is a
director and a 6.13% shareholder.
(5) Includes 5,000 shares underlying presently exercisable
options. Does not include 50,000 shares underlying presently
exercisable options granted to Ladenburg, Thalmann & Co., Inc.,
of which Mr. Bibb is a managing director.
(6) Includes 6,250 shares jointly owned with Regina Daly and
36,250 shares underlying presently exercisable options.
(7) Includes 2,500 shares underlying presently exercisable
options.
(8) As of January 30, 1998, Mr. Nasr no longer was an officer or
employee of the Company.
(9) Includes 12,500 shares underlying presently exercisable
options, which expire April 30, 1998.
(10) As of January 11, 1998, Mr. Andrus no longer was an officer or
employee of the Company.
(11) Includes 196,750 shares underlying presently exercisable
options, of which 23,750 expire April 11, 1998.
(12) Includes 34,062 shares underlying presently exercisable
options or warrants issued by the Company and 58,750 shares owned
by KP3 and included in the beneficial ownership of Mr. Phillips
that Bedford may acquire pursuant to a presently exercisable
option.
(13) Shares beneficially owned by KP3 are also included in shares
beneficially owned by Mr. Phillips; and 58,750 of such shares
also have been included in the beneficial ownership of Bedford.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1995, the Company's then Chief Executive Officer and a
director, Marc Geman, resigned. In connection with his
resignation, Mr. Geman was entitled to severance payments totaling
$180,000, due in monthly payments of $15,000. As of December 31,
1996, Mr. Geman had received all of the severance payments to which
he was entitled. The Company also entered into an Indemnification
Agreement with Mr. Geman whereby the Company agreed to hold him
harmless, in an amount not to exceed $100,000, for expenses
incurred in defense of the pending investigation by the
Commission. As of March 31, 1998, a total of $100,000 in
indemnification payments had been made by the Company under that
agreement.
David L. Andrus, former Executive Vice President of the
Company, participated in the June 1996 offering of debt securities
and warrants. Mr. Andrus purchased $100,000 principal amount, of
subordinated debt and received a promissory note and warrants to
purchase 25,000 shares of Common Stock. In addition, certain
employees of PMC participated in the offering, purchasing a total
of $162,500 of subordinated debt and receiving warrants to purchase
40,625 shares of Common Stock. Mr. Andrus and the other Company
employees participated in the offering on the same terms as all
other investors. See "Business--Corporate History--December 1995 and
June 1996 Offerings."
In November 1996 the Company borrowed $250,000 to fund working
capital requirements pending the closing of a private placement of
Common Stock in December 1996. The lenders included Mr. Phillips
and Mr. Andrus, the Company's President and Chief Executive Officer
and former Executive Vice President, respectively, and certain
other employees of the Company. Bedford, a shareholder affiliate
of the Company, and Keefe, Bruyette & Woods, Inc., the placement
agent for the December 1996 Offering, were also lenders. The loans
were evidenced by 12% notes repaid upon the closing of the December
1996 Offering. The lenders also received warrants to purchase a
total of 6,250 shares of Common Stock at a price of $6.50 per share
and registration rights with respect to the shares of Common Stock
underlying the warrants. See "Business--Corporate History--November
1996 Bridge Loan."
In December 1996, the Company completed a restructuring of its
outstanding debt. As part of the restructuring, Bedford and
certain of its assignees were repaid certain of the subordinated
debt held by them, exercised certain of the warrants held by them,
were issued certain shares of Common Stock by the Company in
cancellation of their other warrants and were issued new five-year
warrants to purchase 37,500 shares of the Common Stock with an
exercise price equal to the price to investors in the December 1996
Offering. As a result of these transactions, all $3 million in
outstanding debt previously owed by the Company to Bedford and its
assignees was eliminated. Bedford also relinquished certain rights
held by it and its right to elect directors of the Company was
modified such that Bedford now has the right to designate one
director so long as it holds at least 10% of the outstanding Common
Stock. In addition, at least one additional director must be
acceptable to Bedford and the Company so long as Bedford owns at
least 5% of the outstanding Common Stock. Bedford also retained
demand and piggyback registration rights with respect to restricted
securities acquired by it from the Company. In connection with the
restructuring, the Company's consulting agreement with Nevcorp,
Inc., was terminated. See "Business--Corporate History--December 1996
Restructuring."
<PAGE>
In connection with the December 1996 restructuring, the
investors in the December 1995 and June 1996 Offerings exercised
their warrants to purchase an aggregate of 375,000 shares of Common
Stock and surrendered canceled promissory notes in the aggregate
principal amount of $1,500,000 in satisfaction of the exercise
price for the warrants. In connection with the exercise of
warrants and cancellation of debt, the investors also received, pro
rata, five-year warrants to purchase an aggregate of 37,500 shares
of Common Stock at an exercise price of $8.50 per share. The
brother and father of Mr. Phillips, the Company's President and
Chief Executive Officer, Mr. Andrus, former Executive Vice
President of the Company, and certain other employees of the
Company, participated in the restructuring on the same terms as the
other parties.
Commencing in December 1996, the Company has provided certain
financial assistance to KP3, a limited liability company
principally owned and controlled by Mr. Phillips, the Company's
President and Chief Executive Officer. See "Business - Corporate
History - Phillips & Andrus, LLC; KP3, LLC" for a summary of these
transactions.
On September 24, 1997, the Company completed the acquisition
of PMCIS by acquiring all of the outstanding capital stock of PMCIS
from its seven shareholders. Mr. MacKillop was the President and a
minority shareholder of PMCIS. The Company paid to the PMCIS
shareholders $5.0 million in cash at closing and agreed to make two
earn-out payments on the first and second anniversary dates of the
closing. In connection with the stock purchase, the Company agreed
to indemnity the shareholders against certain claims for a period
of 30 months after the closing or, in some cases, for a longer
period of time. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," and "Business--Corporate History--PMCIS Acquisition and
Financing."
As part of the September 1997 offering, Emmett J. Daly and
J.W. Nevil Thomas, directors of the Company, Scott A. MacKillop,
the President of PMCIS and current Executive Vice President, Chief
Operating Officer and Director of the Company, Michael T.
Wilkinson, a former director and principal shareholder of PMCIS,
and two other PMCIS employees participated in the offering. All of
such individuals participated in the offering on the same terms as
all other investors. See "Business--Corporate History--PMCIS
Acquisition and Financing."
DESCRIPTION OF SECURITIES
The Company is authorized to issue 50,000,000 shares of Common
Stock, $0.01 par value. As of April 16, 1998, the Company had
4,857,803 shares of Common Stock issued and outstanding with
rights, options and warrants outstanding which could require the
Company to issue 1,083,448 additional shares of Common Stock.
Common Stock
Holders of Common Stock are each entitled to cast one vote for
each share held of record on all matters presented to the
shareholders. Cumulative voting is not allowed; hence, the holders
of a majority of the outstanding Common Stock can elect all
directors. Holders of Common Stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors
out of funds legally available therefor and, in the event of
liquidation, and subject to the rights of the holders of Preferred
Stock, to share pro-rata in any distribution of the Company s
assets after payment of liabilities. No dividends may be paid on
the Common Stock unless dividends payable on the Preferred Stock
are current. The Board of Directors is not obligated to declare a
dividend and it is not anticipated that dividends will be paid in
the foreseeable future.
Holders of Common Stock do not have preemptive rights to
subscribe to additional shares of capital stock if issued by the
Company. There are no conversion, redemption, sinking fund or
similar provisions regarding the Common Stock. All of the
outstanding shares of Common Stock are fully paid and
non-assessable.
Registration Rights. Common Stock issuable upon exercise of
warrants issued in connection with the November 1996 Bridge Loan
and the December 1996 Restructuring and Common Stock issued in the
December 1996 Offering has the following registration rights: an
obligation by the Company and effect and maintain a shelf
registration until such time as the registered shares are sold or
are otherwise transferable during which time holders of 25% of the
registrable securities can request an underwritten offering. The
Company filed Registration Statement Number 333-21335 pursuant
<PAGE>
to these rights. All Common Stock issued or issuable to Bedford
shares this registration right and also has the right to piggyback
on public offerings by the Company.
Common Stock issued in connection with the September 1997
PMCIS Financing has the following registration rights: an
obligation by the Company and effect and maintain a shelf
registration until such time as the registered shares are sold or
are otherwise transferable during which time holders of 25% of the
registrable securities can request an underwritten offering. The
Company filed Registration Statement Number 333-40805 pursuant to
these rights.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of
preferred stock. Under Colorado law, the rights, preferences and
limitations of the preferred stock may be established from time to
time by the Company s Board of Directors. The Company s Articles
of Incorporation, as amended (the "Articles") provide that the
Board of Directors has the authority to divide the preferred stock
into series and, within the limitations provided by Colorado
statute, to fix by resolution the voting power, designation
preferences, and relative participation, optional or other special
rights, and the qualifications, limitations or restrictions of the
shares of any series so established.
As of the date of this Prospectus, the only series of
preferred stock to be designated is the $0.325 Cumulative
Convertible Series A Preferred Stock ("Series A Preferred") with
450,000 shares authorized of which 138,182 shares are issued and
outstanding.
Holders of the Series A Preferred are entitled to receive
dividends at a rate of $.325 per share per annum. Dividends are
payable semi-annually on January 15 and July 15 in each year, but
only when and as authorized by the Board of Directors of the
Company out of assets legally available for dividends. Dividends
accrue from the date of issuance of the shares and are cumulative.
The first dividend due on July 15, 1991, was paid. The preferred
dividends due subsequently have not been paid by the Company, and
as a result, the dividends have cumulated.
Upon liquidation or dissolution of the Company, holders of the
Series A Preferred are entitled to a preference over the holders of
Common Stock in an amount per share equal to the original purchase
price attributed to a share of Series A Preferred ($2.50), plus all
unpaid cumulative dividends. As of March 31, 1998, cumulative
dividends in arrears with respect to the Series A Preferred totaled
approximately $298,419. The Series A Preferred is
non-participating and the holders of the Series A Preferred have no
preemptive rights and no voting rights except as may be required by
Colorado law.
At the option of the Company, the Series A Preferred may be
redeemed in whole or in part, at any time at a price of $2.75 per
share, plus unpaid cumulative dividends, upon 45 days' prior
written notice. Redemption can only occur if certain conditions,
which have not occurred as of the date of this Prospectus, are
satisfied. The voluntary conversion rights have expired.
The Company may, in the future, issue other series of
preferred stock having terms established by the Company's Board of
Directors without requiring the approval of holders of the Common
Stock. Any such issuance of preferred stock could make removal of
the Company's management more difficult than at present. The
provisions relating to preferred stock will make the removal of
management more difficult even if such removal would be considered
beneficial to shareholders generally, and may have the effect of
limiting shareholder participation in certain transactions such as
mergers or tender offers whether or not such transactions are
favored by incumbent management. Because the Board of Directors
has authority to establish the terms of the preferred stock, such
stock could be issued to defend against an attempted takeover of
the Company.
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information regarding
the Selling Shareholders and the Shares offered by the Selling
Shareholders pursuant to this Prospectus. Of the 3,450,973
Shares offered hereby for resale by the Selling Shareholders,
393,752 Shares represent shares of Common Stock to be issued upon
the exercise of outstanding warrants and stock options issued by
the Company. See "Description of Capital Stock." As more fully
disclosed in the footnotes to this table, certain of the Selling
Shareholders are currently, or have been within the past three years,
officers or directors of the Company or have had other material relationships
with the Company. Because the Selling Shareholders may offer all
or some portion of the Shares pursuant to this Prospectus, no
estimate can be given as to the amount of the Shares that will be
held by the Selling Shareholders upon termination of any such
offering. The amount of Shares offered hereby may in some
instances exceed the number of Shares of Common Stock owned by a
particular Selling Shareholder prior to the offering. This
difference is due to Shares of Common Stock issuable by the Company
to Selling Shareholders upon their exercise of options. Unless
otherwise indicated, all ownership amounts after the Offering are
less than 1% of the Company's Common Stock.
- - --------------------------------------------------------------------------
Shares Shares %
Beneficially Number of Beneficially Ownership
Selling Shareholder Owned Shares Owned After
Prior to Offered After the the
Offering Hereby Offering (9) Offering (9)
- - --------------------------------------------------------------------------
Andrus, David (1)(2) 173,000 3,000 170,000 3.4
- - --------------------------------------------------------------------------
1051816 Ontario, Inc. 13,750 13,750 0 0
- - --------------------------------------------------------------------------
Apex Investment 3,750 3,750 0 0
Fund, Ltd.
- - --------------------------------------------------------------------------
Atkinson, William (2) 29,634 29,634 0 0
- - --------------------------------------------------------------------------
Ball, George 27,500 27,500 0 0
- - --------------------------------------------------------------------------
Barlow Partners, Inc. 28,333 25,000 3,333 *
- - --------------------------------------------------------------------------
Bay Pond Investors 270,250 235,250 35,000 *
(Bermuda), L.P.
- - --------------------------------------------------------------------------
Bay Pond Partners,L.P. 406,083 327,750 78,333 1.6
- - --------------------------------------------------------------------------
Bedford Capital 1,563 1,563 0 0
Financial, Inc.
- - --------------------------------------------------------------------------
Bedford Capital 682,500 682,500 0 0
Financial Corp.
- - --------------------------------------------------------------------------
Bibb, D. Porter (3) 5,000 12,500 0 *
- - --------------------------------------------------------------------------
Boston Provident 160,250 160,250 0 0
Partners, L.P.
- - --------------------------------------------------------------------------
Bowden, Roger (4) 40,385 250 40,135 *
- - --------------------------------------------------------------------------
Boyd, Joseph 28,250 28,250 0 0
- - --------------------------------------------------------------------------
BP Institutional 25,000 25,000 0 0
Partners, L.P.
- - --------------------------------------------------------------------------
BP Overseas 25,000 25,000 0 0
Partners, L.P.
- - --------------------------------------------------------------------------
Calandrella, Dorothy 3,437 3,437 0 0
- - --------------------------------------------------------------------------
Canmerge 18,750 13,750 5,000 *
Consultants Limited
- - --------------------------------------------------------------------------
Conner Clark & Co., Ltd.29,250 29,250 0 0
- - --------------------------------------------------------------------------
Creative Business 62,500 62,500 0 0
Strategies, Inc.
- - --------------------------------------------------------------------------
Daly, Emmett (3) 52,500 43,750 18,750 *
- - --------------------------------------------------------------------------
DeArman, William 6,875 6,875 0 0
- - --------------------------------------------------------------------------
Devonshire Trust 13,750 13,750 0 0
- - --------------------------------------------------------------------------
Dobel, Maureen (3)(5) 7,001 313 6,688 *
- - --------------------------------------------------------------------------
Drury, John 27,500 27,500 0 0
- - --------------------------------------------------------------------------
ESB Consultants, Inc. 13,750 13,750 0 0
- - --------------------------------------------------------------------------
Euro Credit 140,813 135,813 5,000 *
Investments, Ltd.
(Global)
- - --------------------------------------------------------------------------
Fruh, Donald 2,652 2,652 0 0
- - --------------------------------------------------------------------------
Geman, Marc (2) (6) 1,385 875 510 *
- - --------------------------------------------------------------------------
Geman, Stuart 42,000 42,000 0 0
- - --------------------------------------------------------------------------
Goldstone, Allen (2) 5,328 5,328 0 0
- - --------------------------------------------------------------------------
Haas, Rick 6,875 6,875 0 0
- - --------------------------------------------------------------------------
Hackley, James, 3,437 3,437 0 0
Hackley, John,
McAllister,
Robyn & Hackley,
Jill
- - --------------------------------------------------------------------------
Investors Financial 27,500 27,500 0 0
Group, Inc.
- - --------------------------------------------------------------------------
Karnell, Jerry 20,089 20,089 0 0
- - --------------------------------------------------------------------------
Keefe Bruyette 157,541 115,875 41,666 *
&Woods, Inc.
- - --------------------------------------------------------------------------
Kling, Carolyn (10) 1,250 1,250 0 0
- - --------------------------------------------------------------------------
KP3, LLC (7) 410,961 410,961 0 0
- - --------------------------------------------------------------------------
Ladenburg, Thalman 50,000 50,000 0 0
& Co. Inc.
- - --------------------------------------------------------------------------
Lotwin, Larry 1,250 1,250 0 0
- - --------------------------------------------------------------------------
Maritime Global 25,000 25,000 0 0
Subsidiary I, Ltd.
- - --------------------------------------------------------------------------
Michaels, Richard 12,500 12,500 0 0
- - --------------------------------------------------------------------------
Morris, Ben 6,875 6,875 0 0
- - --------------------------------------------------------------------------
Opatowski, Michael(2) 12,500 12,500 0 0
- - --------------------------------------------------------------------------
Phillips, Ken (8)(3) 277,418 283,980 938 *
- - --------------------------------------------------------------------------
Phillips, Peter 13,125 13,125 0 0
- - --------------------------------------------------------------------------
Phillips, Val 13,125 13,125 0 0
- - --------------------------------------------------------------------------
Sanders, Don 41,250 41,250 0 0
- - --------------------------------------------------------------------------
Schwartz, Sanford 5,328 5,328 0 0
- - --------------------------------------------------------------------------
Shore, Daniel 1,250 1,250 0 0
- - --------------------------------------------------------------------------
Steans, Harrison 75,000 75,000 0 0
- - --------------------------------------------------------------------------
Steans, Heather 12,500 12,500 0 0
- - --------------------------------------------------------------------------
Steans, Jennifer 12,500 12,500 0 0
- - --------------------------------------------------------------------------
Steans, Robin 12,500 12,500 0 0
- - --------------------------------------------------------------------------
Stradwick, Janette 5,500 5,500 0 0
- - --------------------------------------------------------------------------
Stradwick, John 8,250 8,250 0 0
- - --------------------------------------------------------------------------
Thomas, J.W. Nevil(3)(9) 7,500 12,500 2,500 *
- - --------------------------------------------------------------------------
Tollefson, John 10,375 10,375 0 0
- - --------------------------------------------------------------------------
Tollefson, John 8,250 8,250 0 0
Trustee
- - --------------------------------------------------------------------------
Van der Velden, 2,750 250 2,500 *
Peter
- - --------------------------------------------------------------------------
Wheatley Foreign 27,083 13,750 13,333 *
Partners L.P.
- - --------------------------------------------------------------------------
Wheatley Partners 374,833 221,500 153,333 3.2
L.P.
- - --------------------------------------------------------------------------
Yanari, Thomas (4) 41,144 3,438 37,706 *
- - --------------------------------------------------------------------------
* Less than 1%.
(1) Former Executive Vice President of the Company.
(2) Former Director of the Company.
(3) Director of the Company.
(4) Employee of the Company.
(5) General Counsel of the Company.
(6) Former Chief Executive Officer of the Company.
(7) Mr. Kenneth Phillips, the President and Chief Executive Officer of the
Company, is a member of KP3, LLC.
(8) President and Chief Executive Officer of the Company. Does not include
410,961 shares owned by KP3, LLC of which Mr. Phillips is the
principal owner and manager.
(9) Excludes 2,500 shares owned by spouse.
(10) Former Senior Vice President of PMC.
<PAGE>
PLAN OF DISTRIBUTION
The Selling Shareholders' Shares may be offered and sold from
time to time in the discretion of the Selling Shareholders in the
over-the-counter market, or otherwise, at prices and terms then
prevailing or at prices related to the then-current market price,
or in negotiated transactions. The Selling Shareholders will act
independently of the Company in making decisions with respect to
the timing, manner and size of each sale hereunder. The Selling
Shareholders' Shares may be sold by one or more of the following
methods, without limitation: (i) a block trade in which a broker
or dealer so engaged will attempt to sell the Shares as agent but
may position and resell a portion of the block as principal to
facilitate the transaction; (ii) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (iii) ordinary brokerage transactions
and transactions in which the broker solicits purchases; and
(iv) face-to-face transactions between sellers and purchasers
without a broker/dealer. In effecting sales, brokers or dealers
engaged by the Selling Shareholders may arrange for other brokers
or dealers to participate. Such brokers or dealers may receive
commissions or discounts from Selling Shareholders in amounts to be
negotiated. Such brokers and dealers and any other participating
brokers or dealers may be deemed to be "underwriters'' within the
meaning of the Securities Act, in connection with such sales.
Sales of Selling Shareholders' Shares may also be made
pursuant to Rule 144 under the Securities Act, where applicable.
The Shares may also be offered in one or more underwritten
offerings, on a firm commitment or best efforts basis. The Company
will receive no proceeds from the sale of the Shares by the Selling
Shareholders. The Shares may be sold from time to time in one or
more transactions at a fixed offering price, which may be changed,
or at varying prices determined at the time of sale or at
negotiated prices. Such prices will be determined by the Selling
Shareholders or by agreement between a Selling Shareholder and its
underwriters, dealers, brokers or agents.
To the extent required under the Securities Act, the aggregate
amount of Shares being offered and the terms of the offering, the
names of any such agents, brokers, dealers or underwriters and any
applicable commission with respect to a particular offer will be
set forth in an accompanying Prospectus Supplement. Any
underwriters, dealers, brokers or agents participating in the
distribution of the Shares may receive compensation in the form of
underwriting discounts, concessions, commissions or fees from a
Selling Shareholder and/or purchasers of Shares, for whom they may
act. In addition, sellers of Shares may be deemed to be
underwriters under the Securities Act and any profits on the sale
of Shares by them may be deemed to be discount commissions under
the Securities Act. Selling Shareholders may have other business
relationships with the Company and its subsidiaries or affiliates
in the ordinary course of business.
From time to time one or more of the Selling Shareholders may
transfer, pledge, donate or assign Shares to lenders, family
members and others and each of such persons will be deemed to be a
"Selling Shareholder" for purposes of this Prospectus. The number
of Shares beneficially owned by those Selling Shareholders who so
transfer, pledge, donate or assign Shares will decrease as and when
they take such actions. The plan of distribution for Shares sold
hereunder will otherwise remain unchanged, except that the
transferees, pledgees, donees or other successors will be Selling
Shareholders hereunder.
LEGAL MATTERS
Certain legal matters in connection with the Shares offered
hereby have been passed upon for the Company by Holme Roberts &
Owen LLP, Denver, Colorado.
EXPERTS
The financial statements of PMC International, Inc. as of
December 31, 1997 and 1996, and for the years then ended included
herein have been included herein in reliance upon the report of
Spicer, Jeffries & Co., independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other
information may be inspected without charge at, and copies thereof
may be obtained at prescribed rates from, the public reference
facilities of the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at the Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. In addition, the Commission
maintains a world wide web site that contains reports, proxy and
information statements and other information regarding registrants
that file electronically with the Commission. The address of such
site is http://www.sec.gov.
The Company has filed with the Commission a registration
statement on Form SB-2 under the Securities Act with respect to the
securities offered hereby (together with all amendments and
exhibits, the "Registration Statement"). This Prospectus, which is
part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain
portions of which have been omitted in accordance with the rules
and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to
each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is hereby made to the
exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by
such reference. For further information with respect to the
Company and the securities offered hereby reference is made to the
Registration Statement, and to the exhibits thereto, which may be
inspected at, and copies thereof may be obtained at prescribed
rates from, the public reference facilities of the Commission at
the addresses set forth above.
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONTENTS
======================
Financial statements for the years ended
December 31, 1997 and 1996
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in
Shareholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
PMC International, Inc.
We have audited the accompanying consolidated balance sheets of
PMC International, Inc. and its subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of
operations, shareholders' equity (deficit), and cash flows for
the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company at December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting
principles.
SPICER, JEFFRIES & CO.
Denver, Colorado
March 5, 1998
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
CASH AND CASH EQUIVALENTS (Notes 1 and 7) $ 2,953,740 $ 6,499,390
RECEIVABLES:
Investment management fees 1,041,390 113,778
Other receivables 166,221 187,109
FURNITURE AND EQUIPMENT, at cost, net of accumulated
depreciation of $1,277,801 and $539,782 (Note 1) 965,168 604,085
SOFTWARE AND PRODUCT DEVELOPMENT COSTS,
at cost, net of accumulated amortization of
$963,469 and $352,971 (Note 1) 1,208,713 843,272
PREPAID EXPENSES AND OTHER ASSETS 1,023,364 340,006
LONG TERM NOTES RECEIVABLE (Note 2) 623,115 575,804
GOODWILL (net of amortization of $146,096) 5,394,606 -
----------------- ----------------
$ 13,376,317 $ 9,163,444
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 1,687,967 $ 839,095
Accrued expenses 644,012 535,520
Other liabilities 104,125 730,909
Deferred revenue 1,307,382 552,868
Notes payable (Note 6) 366,158 14,694
Obligations under capital leases (Note 7) 384,986 219,821
----------------- ----------------
Total liabilities 4,494,630 2,892,907
----------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Note 3):
Preferred stock - no par value - authorized 5,000,000 shares;
issued and outstanding, 138,182 and 175,897 shares 345,455 439,742
Common stock, $.01 par value - authorized, 50,000,000 shares;
issued and outstanding, 4,857,903 and 3,617,939 shares 48,579 36,179
Additional paid-in capital 22,977,526 16,461,953
Deficit (14,489,873) (10,667,337)
----------------- ----------------
Total shareholders' equity 8,881,687 6,270,537
----------------- ----------------
$ 13,376,317 $ 9,163,444
================= ================
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUE:
Investment management fees (Note 1) $ 14,668,348 $ 9,944,544
Other income 194,366 142,337
----------------- ----------------
Total revenue 14,862,714 10,086,881
----------------- ----------------
EXPENSES:
Investment manager and other fees 8,151,912 5,580,846
Salaries and benefits 5,039,136 3,524,825
Clearing charges and user fees 613,794 813,239
Advertising and promotion 1,060,930 830,140
General and administrative 1,317,354 1,098,895
Software development costs 272,772 132,392
Occupancy and equipment costs 1,708,714 1,125,744
Professional fees 520,638 827,292
Settlement expense - 155,000
----------------- ----------------
Total expenses 18,685,250 14,088,373
----------------- ----------------
NET LOSS $ (3,822,536) $ (4,001,492)
=============== ================
NET LOSS PER COMMON SHARE (Note 1) $ (0.98) $ (2.85)
=============== ================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (Note 1) 3,961,768 1,425,509
================= ================
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1997 AND 1996
<CAPTION>
Total
Common Stock Additional Preferred Shareholders'
------------ Paid - In Stock Equity
Shares Amount Capital Shares Amount Deficit (Deficit)
-------- ------- ------- ------ ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995
as previously stated 5,555,713 $ 55,556 $3,523,909 349,017 $ 872,543 $ (6,665,845) $(2,213,837)
Stock Split effected (Note 1) (4,166,785) (41,667) 41,667 - - - -
---------- -------- ----------- -------- --------- ------------- ------------
BALANCES, December 31, 1995 as restated 1,338,928 13,889 3,565,576 349,017 872,543 (6,665,845) (2,213,837)
Stock options exercised 250 2 1,373 - - - 1,375
Notes payable converted to common stock 875,000 8,750 2,515,000 - - - 2,523,750
Preferred stock converted to common stock 59,511 595 432,206 (173,120) (432,801) - -
Issuance of stock 1,294,250 12,943 10,988,182 - - - 11,001,125
Less stock issuance costs - - (1,040,384) - - - (1,040,384)
Net loss - - - - - (4,001,492) (4,001,492)
---------- -------- ----------- -------- --------- ------------- ------------
BALANCES, December 31, 1996 3,617,939 36,179 16,461,953 175,897 439,742 (10,667,337) 6,270,537
Stock options exercised 6,250 63 26,812 - - - 26,875
Issuance of stock 1,220,749 12,207 7,312,287 - - - 7,324,494
Preferred stock converted to common stock 12,965 130 94,157 (37,715) (94,287) - -
Less stock issuance costs - - (917,683) - - - (917,683)
Net loss - - - - - (3,822,536) (3,822,536)
---------- -------- ----------- -------- --------- ------------- ------------
BALANCES, December 31, 1997 4,857,903 $ 48,579 $22,977,526 138,182 $ 345,455 $ (14,489,873) $ 8,881,687
========== ======== =========== ======== ========= ============= ============
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1997 AND 1996
INCREASE (DECREASE) IN CASH
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,822,536) $ (4,001,492)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,137,790 537,522
Accretion of discount on note receivable (96,590) (67,181)
Changes in operating assets and liabilities:
Investment management fees receivable (736,202) (105,981)
Other receivables (5,738) (97,273)
Prepaid expenses and other assets 121,788 (119,401)
Accrued expenses 108,492 (172,377)
Accounts payable 525,947 (597,029)
SEC settlement distribution (605,591) -
Other liabilities (21,193) 159,520
Deferred revenue (21,547) 141,521
-------------- --------------
Net cash used in operating activities (3,415,380) (4,322,171)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (303,028) (376,574)
Reduction of long-term note receivable 345,582 393,854
Issuance of notes receivable (301,613) -
Acquisition of ADAM, net of cash acquired (5,104,007) -
Cost of software development (1,027,163) (295,022)
-------------- --------------
Net cash used in investing activities (6,390,229) (277,742)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 3,125,000
Principal payments on notes payable (8,536) (2,234,026)
Payments on obligations under capital lease (165,191) (67,672)
Sale of common stock, less offering costs 6,406,811 9,960,741
Proceeds from exercise of stock options 26,875 1,375
-------------- --------------
Net cash provided by financing activities 6,259,959 10,785,418
-------------- --------------
NET INCREASE (DECREASE) IN CASH (3,545,650) 6,185,505
CASH, at beginning of year 6,499,390 313,885
-------------- --------------
CASH, at end of year $ 2,953,740 $ 6,499,390
============== ==============
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1997 AND 1996
INCREASE (DECREASE) IN CASH
(Continued)
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 34,137 $ 367,180
============== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of equipment via capital lease obligation $ 330,356 $ 205,433
============== ============
Conversion of preferred stock to common stock $ 94,287 $ 432,801
============== ============
Conversion of notes payable to common stock $ - $ 2,523,750
============== ============
Transfer of assets via accounts receivable at net book value $ 43,002 $ -
============== ============
The Company purchased all of the capital stock of
ADAM for $5,163,386. In connection with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 6,622,370
==============
Cash paid for the capital stock (5,163,386)
==============
Liabilities assumed $ 1,458,984
==============
</TABLE>
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
On September 23, 1993, the shareholders of Schield Management
Company ("Schield") approved an exchange of common stock of
Schield for all of the outstanding common stock of Portfolio
Management Consultants, Inc. ("PMC") and a name change from
Schield to PMC International, Inc. ("PMCI" or the "Company").
The share exchange was completed on September 30, 1993 and as a
result of this transaction, PMC is a wholly owned subsidiary of
PMCI. The share exchange between Schield and PMC was treated as
a reverse acquisition and accounted for under the purchase method
of accounting. Under reverse acquisition accounting, PMC was
considered the acquiror for accounting and financial reporting
purposes, and acquired the assets and assumed the liabilities of
Schield.
On September 24, 1997, PMCI completed its acquisition (the
"Acquisition") of PMC Investment Services, Inc., ("PMCIS")
formerly ADAM Investment Services, Inc. ("ADAM"), a Delaware
Corporation, and its wholly owned subsidiary, Optima Funds, Inc.,
("Optima") a Georgia corporation, pursuant to a Stock Purchase
Agreement dated July 25, 1997 ("the Agreement") among the
Company, ADAM and ADAM's shareholders. PMCI acquired all of the
issued and outstanding shares of common stock of ADAM from its
shareholders in consideration for payment of $5 million at
closing and two earn-out payments on the first and second
anniversary dates of the closing. The first earn-out payment
will equal 1.0% of ADAM's standard fee assets under management in
excess of $500 million, determined on the one-year anniversary of
the closing of the Acquisition, not to exceed $2.0 million, plus
interest thereon at a rate of 8.75%. The second earn-out payment
will equal 1.0% of ADAM's standard fee assets under management in
excess of $700 million, determined on the two-year anniversary of
the closing of the Acquisition, not to exceed $2.0 million. The
Acquisition was accounted for using the purchase method of
accounting. The excess of the cost of the Acquisition over the
fair value of the assets acquired and liabilities assumed was
recorded as goodwill. The Acquisition was funded from the
proceeds of a private placement of PMCI common stock which also
closed on September 24, 1997. The Company raised approximately
$6.6 million by selling 1,220,749 shares of PMCI common stock at
$6.00 per share.
PMC was organized in 1986 and its principal business activity is
the administration of private and institutional managed account
programs with its customers located substantially in the United
States. Its services include investment suitability analysis,
portfolio modeling and asset allocation, money manager selection,
portfolio accounting and performance reporting. PMC is
registered as an investment advisor under the Investment Advisors
Act of 1940.
F-8
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Organization (continued)
In June, 1994, Portfolio Brokerage Services, Inc. ("PBS") was
capitalized through a series of transactions with PMCI and PMC,
whereby PBS became a wholly owned subsidiary of PMCI by issuing
1,000 shares of its common stock in exchange for certain assets
and liabilities with a book value of $1,532,332. PBS is engaged
in business as a securities broker-dealer. As a broker-dealer it
executes security transactions for PMC's privately managed
account programs, on behalf of its customers, through the
customer's custodian bank on a delivery versus payment basis.
Portfolio Technology Service, Inc. ("PTS"), a wholly owned
subsidiary of PMCI, was organized in June, 1994 but had no
operations until 1995. PTS was formed for the purpose of
developing proprietary software for use in the financial services
industry.
ADAM was formed in 1980 to provide investment consulting services
to institutional investors. ADAM's primary services are based
around mutual funds. ADAM offers 17 model portfolios constructed
using no-load mutual funds and funds available at net asset
value. ADAM's mutual fund portfolios are offered as options for
use by 401(k) plans and with an insurance company within a variable
annuity contract.
The accompanying consolidated financial statements include the
historical accounts of PMC for all periods and the accounts of
PMCI since September 30, 1993, PBS and PTS since inception and
ADAM since September 24, 1997. All intercompany accounts and
transactions have been eliminated in consolidation.
On December 15, 1997, at the Annual Meeting of Shareholders of
the Company, the Shareholders of the Company approved a 1 for 4
reverse split of the Common Stock (the "Reverse Split"). On
December 30, 1997, the Company effected the Reverse Split to all
shareholders of record as of December 30, 1997.
Unless otherwise noted, all references to shares and share
prices, including retroactive treatment, reflect the Reverse
Split.
Significant Accounting Policies
Revenue from investment management services is recorded as such
revenues accrue under the terms of the related investment
management contracts. A specific charge to earnings is recorded
when a significant and permanent contingency exists; primarily
the inability to collect amounts due according to contract terms.
F-9
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Significant Accounting Policies (continued)
Securities transactions and related commission income are
recorded on a trade date basis. In the normal course of
business, PBS executes, as agent, transactions on behalf of
customers. If the agency transactions do not settle because of
failure to perform by either the customer or the counter-party,
PBS may be obligated to discharge the obligation of the
non-performing party and, as a result, may incur a loss if the
market value of the security is different from the contract
amount of the transactions.
The Company has developed a windows-based software program for
sale to financial product distribution entities. The product is
designed to guide clients of these entities through the process
of choosing appropriate combinations of mutual funds for their
own portfolios. The majority of costs incurred to establish the
technological feasibility of this product were borne by unrelated
individuals prior to the product being introduced to the
Company. Prior to achieving technological feasibility in 1995,
the Company incurred approximately $50,000 in research and
development costs after receiving the products from the unrelated
individuals. All subsequent costs incurred directly related to
the development of the software were capitalized. Capitalized
costs are being amortized over the economic life of the software,
which in this case is three years. It is the Company's policy to
amortize and evaluate software for net realizable value on a
product-by-product basis. The software became available for sale
during 1996. The Company generates revenues from four sources:
license fees, customization fees, a continuing fee equal to a
percentage of assets under management of the end users purchasing
such software, and annual maintenance fees. Costs of maintenance
and customer support are charged to expense when the related
revenue is recognized, or when those costs are incurred,
whichever occurs first.
During 1997, PMC entered into agreements with certain clients to
provide customized software, advisory, consulting and reporting
services in connection with the clients' investment advisory
services. PMC has capitalized product development costs
consisting of salaries and other direct costs relating to these
products. These costs are being amortized on the straight line
method over the terms of the related contracts.
The Company provides for depreciation of furniture and equipment
on the straight line and declining balance methods based on
estimated lives of three to seven years.
Goodwill, which resulted from the acquisition of ADAM, as
described above, is being amortized over a period of 120 months.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-10
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Significant Accounting Policies (continued)
The Company follows the intrinsic value based method of
accounting as prescribed by APB 25, Accounting for Stock Issued to
Employees, for its stock-based compensation. Under the Company's
stock option plan, the exercise price is equal to the fair value
of the options at the grant date and no compensation cost is
recognized.
Cash and cash equivalents for purposes of the statement of cash
flows includes highly liquid investments with a maturity of three
months or less at the date of acquisition.
Net loss per share of common stock is based on the weighted
average number of shares of common stock outstanding. Common
stock equivalents are not included in the weighted average
calculation since their effect would be anti-dilutive. Dividends
on cumulative preferred stock, of $44,909 and $57,166 for the
years ended December 31, 1997 and 1996 respectively, have been
added back to the net loss in computing the net loss per share.
The Company adopted the provisions of SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, in its financial statements for the year ended
December 31, 1996. The adoption of SFAS 121 had no material
affect on the Company's financial statements. The Company reviews
its long-lived assets for impairment to determine if the carrying
amount of the asset is recoverable.
Certain 1996 amounts have been reclassified to conform to 1997
presentation.
NOTE 2 - LONG TERM NOTES RECEIVABLE
In connection with the Schield reverse acquisition, the Company
acquired a long term note receivable related to the sale of
Schield's market timing operations from an entity controlled by a
founder of Schield. The note is payable in monthly installments
of $32,000, including interest, through August, 1998. The note
was recorded at its estimated fair value as of September 30,
1993. The discount from the face amount of the note receivable
is a credit to interest income over the life of the note using
the interest method. The principal balance of the note as of
December 31, 1997 is $379,377 compared to its carrying amount of
$349,332. While the original transaction involved a transfer of
operations, the transaction was handled on an arms length basis.
The Company did not provide any guarantee of the obligations of
the buyer and had no further involvement with the business after
the sale. As of December 31, 1997, the Company agreed to defer
the September 1997 through December 1997 payments; these payments
were made in January 1998.
F-11
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 2 - LONG TERM NOTE RECEIVABLE (continued)
During January, 1997, the Company authorized financing of 38,672
shares of PMCI's common stock which had been purchased and owned
by a number of PMC employees, including one officer, as part of a
private sale of stock by a shareholder of the Company in 1993.
This purchase was originally financed through a bank loan which
came due on December 31, 1996. The balloon amount due at the
expiration of the loan was $142,093, $46,300 from the one officer
and $95,793 from employees of the Company that are not officers
or directors. In January, 1997 PMCI paid off the prior bank loan
and financed this amount for its employees as notes receivable,
collateralized by the underlying stock. PMCI is receiving
installments in the amount of $3,435 collected through payroll
deductions. These notes will mature on December 31, 1999, with
balloon payments of $38,825 due from employees. At December 31,
1997, $118,057 was included in notes receivable related to these
notes.
During 1997, the Company loaned a limited liability company owned
and controlled by the Company's president and chief executive
officer, (the "LLC") amounts sufficient to pay interest on a bank
loan guaranteed by the Company (see Note 7). The balance of such
loan at December 31, 1997 was $155,726 including accrued
interest. The loan matures on December 31, 1998.
NOTE 3 - SHAREHOLDERS' EQUITY
Preferred Stock
Holders of preferred stock are entitled to receive dividends at a
rate of $0.325 per share per annum (equal to 13% of the purchase
price per share attributable to the preferred stock). Dividends
are payable semi-annually on January 15 and July 15 in each
year. Dividends accrue from the date of the preferred stock
issuance and are cumulative. Upon liquidation or dissolution of
the Company, holders of preferred stock are entitled to a
preference over the holders of common stock in an amount per
share equal to the original purchase price attributed to a share
of preferred stock ($2.50) plus all unpaid cumulative dividends.
The preferred stock is non-participating and the holders of
preferred stock have no preemptive rights and no voting rights
except as may be required by Colorado law. At the option of the
Company, the preferred stock may be redeemed in whole, or in
part, at a price of $2.75 per share, plus unpaid cumulative
dividends. Redemption can only occur if certain conditions
regarding the bid prices of the Company's common stock and the
Company's after-tax earnings are met.
As of January 15, 1998, cumulative dividends in arrears totaled
approximately $298,400.
F-12
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 3 - SHAREHOLDERS' EQUITY (continued)
Common Stock
During December, 1996, the Company issued 2,229,011 shares of its
common stock through several issuances. First, a private
placement was completed whereby 1,294,250 shares were issued for
cash of $11,001,125 less offering costs of $1,040,384. Secondly,
convertible promissory notes issued in December, 1995 and the
first half of 1996 in the amount of $1,500,000 were repaid and
the proceeds were used to exercise warrants for 375,000 common
shares, and 37,500 new warrants were issued to the noteholders in
connection therewith (see Note 6). Thirdly, in connection with
the shareholder note payable as described in Note 6, warrants to
purchase 255,937 shares of common stock were exercised for cash
of $1,023,750 and warrants to purchase 494,062 shares of common
stock were exchanged for 244,062 shares of common and 37,500 new
warrants. Additionally, certain preferred shareholders exercised
their conversion rights and exchanged 173,120 preferred shares
for 59,510 shares of common.
During January, 1997, certain shareholders voluntarily exchanged
37,715 shares of Preferred Stock for 12,965 shares of common
stock.
In September 1997, the Company issued 1,220,749 shares of common
stock in a private placement for cash of $7,324,494 less offering
costs of $917,683.
NOTE 4 - INCOME TAXES
The Company has an unused net operating loss carryforward of
approximately $11,000,000 for income tax purposes, $1,200,000
expiring in 2009, $1,800,000 in 2010, $3,800,000 in 2011 and the
remainder expiring in 2012. This net operating loss carryforward
may result in future income tax benefits of approximately
$4,300,000; however, because realization is uncertain at this
time, a valuation reserve in the same amount has been
established. Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31,
1997 and 1996 are as follows:
1997 1996
=========== ==========
Deferred tax liabilities $ - $ -
=========== ==========
Deferred tax assets
Net operating loss carry forwards 4,276,800 2,579,000
Legal settlement - 233,300
----------- ----------
Total deferred tax assets 4,276,800 2,812,300
Valuation allowance for deferred
tax assets (4,276,800) (2,812,300)
=========== ==========
$ - $ -
=========== ==========
The valuation allowance for deferred tax assets was increased by
$1,464,500 and $1,487,800 during 1997 and 1996, respectively.
F-13
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 5 - REGULATORY REQUIREMENTS
PBS is subject to the Securities and Exchange Commission's
Uniform Net Capital Rule (Rule 15c3-1), which requires the
maintenance of minimum net capital. At December 31, 1997, PBS
had net capital and net capital requirements of $1,145,758 and
$100,000, respectively. The Company's net capital ratio
(aggregate indebtedness to net capital) was .09 to 1. According
to Rule 15c3-1, PBS's net capital ratio shall not exceed 15 to
1. On a consolidated basis, as a result of the requirement, net
assets of $120,000 are unavailable for any purpose other than
meeting PBS's net capital requirements at December 31, 1997.
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
1997 1996
----------- -----------
5% note payable to a former
stockholder of ADAM Investment
Services, Inc., unsecured, requiring
annual principal and interest $ 240,000 $ -
payments and maturing February 9,
1999.
11% note payable to a former
shareholder of ADAM Investment
Services, Inc., unsecured, due 120,000 -
February 5, 2000, payable in
quarterly payments of principal and
interest.
11.5% note payable to shareholder(s),
unsecured, due August 1, 1998,
payable in monthly installments of 6,158 14,694
$832 including interest.
----------- -----------
$ 366,158 $ 14,694
=========== ===========
In 1995 a shareholder acquired 250,000 shares of the Company's
common stock in a private transaction with another individual and
loaned the Company $1,200,000. In connection with this loan, a
warrant to purchase 300,000 shares of common stock at $4.00 per
share (see Note 3) was also received. In addition, the
shareholder obtained an option to lend the Company an additional
$1,800,000 and received warrants similar to those issued in
connection with the initial loan. This
shareholder exercised its option and loaned the Company an
additional $1,800,000 through several partial exercises through
July 9, 1996, and received 450,000 warrants to purchase
common shares. On December 24, 1996, the shareholder and the
Company entered into an agreement whereby (1) the Company would
remit $1,976,250 against the principal amount of the loan, (2)
the shareholder would exercise warrants to purchase 255,937
common shares at $4.00 per share to be used against the remaining
principal balance, and (3) the shareholder would exchange its
remaining warrants for 244,062 shares of common stock and 37,500
warrants to purchase common stock at $8.50 per share.
In November, 1996, the Company borrowed $250,000 from the Company's
President, Executive Vice President, Company employees, a shareholder,
and the Company's investment bankin firm on a short-term basis
carrying interest at 12%. In December, 1996 these amounts were
repaid through the proceeds of the private offering (see Note 3).
F-14
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 6 - NOTES PAYABLE (continued)
On December 14, 1995, the Company commenced a private offering of
units. Each unit consisted of a promissory note with limited
conversion rights in the principal amount of $1,000 and a warrant
to purchase 250 shares of common stock at a price per share equal
to the greater of $4.00 or the market price on the initial
closing date of the offering. If the notes were not paid by the
due date, the notes, at the option of the holder, became
convertible into shares of the Company's common stock on the
basis of one share for each $4.00 of unpaid principal and
interest. On May 7, 1996 a second private offering of units
commenced with similar terms and, after completion, $1,500,000 of
promissory notes were outstanding from both offerings. Prior to
the due date of the notes, the Company asked its noteholders to
apply their principal balance against the exercise price of their
warrants and, in addition, they would also receive warrants to
purchase 37,500 shares of the Company's stock at an exercise
price of $8.50 per share. Subsequently, the noteholders agreed
to this arrangement.
As of December 31, 1997, maturities of notes payable are as
follows:
September 30, Amount
------------ ------
1998 $166,158
1999 160,000
2000 40,000
-----------
$ 366,158
===========
Interest expense for the years ended December 31, 1997 and 1996
was $43,227 and $331,008 respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
PMC had been under a formal order of private investigation by the
Securities and Exchange Commission relating to certain aspects of
PMC's former practice of principal trading. PMC discontinued
this practice in April, 1994. In 1995, the Company submitted a
settlement proposal to the Commission, without admitting or
denying liability, on behalf of PMC under a plan pursuant to
which PMC should disgorge its net trading profits realized from
principal trading together with prejudgment interest in an amount
estimated to be $465,000. In 1996, the settlement was accepted
by the Commission with the total amount payable, including
accrued interest, approximating $616,000. At December 31, 1997,
approximately $9,400 is included in other liabilities in the
accompanying financial statements.
F-15
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)
In January, 1997, LLC, mentioned in Note 2, borrowed $1,750,000
from a bank with a due date of December 31, 1997. The purpose of
the loan was to finance payment of the deferred portion of the
purchase price of 410,961 shares of Common Stock owned by the LLC
that were purchased from a former officer of the Company at the
time of his departure. In connection with this borrowing, the
Company agreed to collateralize the loan on behalf of the LLC.
Accordingly, $1,890,000 of cash was restricted for this purpose.
Subsequently, the Company renegotiated the arrangement with
another bank and accordingly, as of December 31, 1997, $1,422,264
included in cash and cash equivalents in the accompanying balance
sheet is restricted under this arrangement with the Company
guaranteeing the uncollateralized balance. The Company also
agreed to loan the LLC amounts sufficient to pay interest on the
loan so long as the amount of loans made and bank collateral
provided would not exceed $2,000,000. As of December 31, 1997,
(see Note 2) the Company has loaned the LLC $150,400 designated
to pay the interest on the bank loan. The LLC has agreed to
reimburse the Company for any amounts paid by the Company toward
the loan or for collateral applied to the loan, including
interest at an annual rate of 9%, and has granted the Company a
security interest in 323,461 shares of the Company's common stock
held by it.
The Company leases office space and equipment under various
operating and capital leases. Included in furniture and
equipment is $562,532 of equipment under capital leases at
December 31, 1997 and accumulated depreciation relating to these
leases of $219,198.
Future minimum lease payments under noncancelable leases as of
December 31, 1997 are as follows:
Principal
Year ending due
December 31, Operating Capital Capital Lease
- - -------------- --------- ------- -------------
1998 $ 681,334 $ 230,421 $ 203,023
1999 812,782 147,473 136,628
2000 828,340 46,908 45,335
2001 568,716 - -
2002 574,176 - -
--------- --------- ----------
$3,465,348 424,802 $ 384,986
========== ==========
Less amount representing interest 39,816
---------
Present value of net minimum
lease payments $ 384,986
=========
Total rent expense for facilities and equipment for the years
ended December 31, 1997 and 1996, was $628,551 and $471,339,
respectively.
F-16
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)
The Company has historically incurred net losses and accordingly
experienced cash flow problems. As a result of the acquisition
of ADAM, the Company is obligated to make a deferred purchase
payment on September 24, 1998. The payment will be equal to 1.0%
of certain ADAM assets under management in excess of
$500,000,000, with the payment not to exceed $2,000,000 plus interest.
As of December 31, 1997, this payment would not be able to be made
principally due to the fact that $1,400,000 of cash is
restricted. In addition, through the first quarter of 1998,
continuing losses from operations have resulted in the Company's
cash balances decreasing further. In March 1998, the Company
implemented a cost reduction plan. Management believes that this
plan along with projected increases in revenues and deferral of
payments of expenses should allow the Company to continue without
requiring additional resources, excluding the ADAM payment. The
Company is currently investigating sources of short and long term
capital to meet the ADAM payment as well as working capital
needs. Should additional capital not be raised, the Company will
be required to restructure the terms of the ADAM payment, to
remove the restriction from its cash balances, restructure its
operations or a combination of the above.
NOTE 8 - STOCK OPTIONS AND WARRANTS
The Company has an equity incentive stock option plan. The Plan
was adopted by the Company's Board of Directors on November 12,
1997, and approved by shareholders on December 15, 1997. The Board
believes that approval of the Plan is in the
best interests of the Company. The purpose of the Plan is to
provide incentives to attract, retain and motivate eligible
persons whose present and potential contributions are important
to the success of the Company, by offering them an opportunity to
participate in the Company's future performance through awards of
options and stock bonuses. Options totaling 177,386 were granted
in 1998 under the Plan. Also the Company has granted options to
officers, employees, shareholders and certain other individuals
and entities. These plans and arrangements allow these parties
to purchase common stock of the Company generally at the market
value of the stock at date of grant. Options are generally for a
five-year term, however, in certain instances the term is longer.
In addition, common stock warrants have been issued in connection
with certain private offerings of stock and debt. At December
31, 1997, warrants to purchase common stock at various prices
were outstanding which expire as follows:
Expiration Exercise
Date Warrants Price
-------------- -------- -----
December, 1998 75,000 $6.48
June, 2001 50,000 4.00
November, 2001 6,250 6.50
December, 2001 137,500 8.50
--------
268,750
========
F-17
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 8 - STOCK OPTIONS AND WARRANTS (continued)
The following table describes certain information related to the
Company's compensatory stock option activity for the years ending
December 31, 1997 and 1996.
1997 1996
------------------- -------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Options Prices of Options Prices
---------- ------ ---------- -------
Outstanding, beginning of year 627,625 $5.80 254,000 $5.68
Grants during year -
Exercise price equals
market price 209,795 7.07 338,125 5.60
Exercise price greater than
market price - - 50,000 6.24
Exercised during year (6,250) 4.30 (250) 5.52
Forfeited during year (56,750) 5.17 (5,500) 4.52
Expired during year (13,125) 10.00 (8,750) 11.16
------- ----- ------- -----
Outstanding, end of year 761,295 6.03 627,625 5.80
======= =======
Exercisable 519,000 5.68 350,125 5.80
======= =======
The weighted average grant date fair value of the options granted
in 1997 and 1996 was as follows:
1997 1996
-------- --------
Exercise price equals
market price $ 3.40 $ 2.68
Exercise price is greater than
market price $ - $ 4.12
During 1996, the fair value of each option grant was estimated
using the Black-Scholes option-pricing model with the following
assumptions: risk-free interest rate of 5.71% to 6.56%; dividend
yield of -0-%; expected lives of five to six years; and
volatility of 37.2% to 44.2%.
F-18
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 8 - STOCK OPTIONS AND WARRANTS (continued)
A summary of the Company's outstanding and exercisable stock
options as of December 31, 1997 are as follows:
Weighted Average
Number Remaining
Range of of Weighted Average Contractual
Exercise Prices Options Exercise Price Life (months)
- - ------------------ ---------- -------------------- -----------------
$4.00 - $5.50
Outstanding 251,625 $ 4.64 19
Exercisable 251,625 4.64 21
$6.00 - $6.50
Outstanding 417,170 6.24 40
Exercisable 217,375 6.23 21
$7.50 - $8.50
Outstanding 62,500 8.37 49
Exercisable 50,000 8.50 48
$10.00
Outstanding 30,000 10.00 57
Exercisable - - -
As previously described, the Company applies APB 25 and related
Interpretations in accounting for its stock options.
Accordingly, no compensation cost has been recognized. Had
compensation cost for the Company's vested options been
determined based on the fair value at the grant dates for awards
consistent with the method of SFAS 123, the Company's net loss
and loss per share would have resulted in the pro-forma amounts
indicated below:
1997 1996
----------- -----------
Net loss $(3,860,050) $(5,111,682)
=========== ===========
Net loss per share $ (.99) $ (3.63)
=========== ===========
NOTE 9 - EMPLOYEE BENEFIT PLAN
Salary deferral "401(k)" plan
The plan allows employees, who have completed one year of
employment and at least 1,000 hours service, to defer up to 15%
of their salary. The Company matches employee contributions by an
amount determined annually by the board of directors. Only
contributions up to the first 6% of an employee's salary will be
considered for the match.
F-19
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================
NOTE 10 - RISKS AND UNCERTAINTIES
The Company's revenues are primarily derived from a percentage of
the assets under the management of its distribution channels.
Assets under management are impacted by both the extent to which
the Company attracts new, or loses existing clients and the
appreciation or depreciation of the U.S. and international equity
and fixed income markets. A downturn in general economic
conditions could cause investors to cease using the products,
including its proprietary software products, and services of the
Company or its distribution channels.
The Company has deposits in banks in excess of the FDIC insured
amount of $100,000. The amounts in excess of the $100,000 are
subject to loss should the banks cease business.
The Company has been notified of a threatened litigation from a
former employee alleging damages of $1,190,000. Management, after
review and discussion with counsel, believes the Company has
meritorious defenses and intends to vigorously defend itself in
this matter, but it is not feasible to predict the final outcome
at the present time.
NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS 107 requires disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not
recognized in the statement of financial position, for which it
is practicable to estimate fair value.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
The carrying amount of cash and cash equivalents approximates
fair value because of the short maturity of those instruments.
The carrying amount of receivables, accounts payable, accrued
expenses and other liabilities approximates fair value because
the collection or payments on those instruments are expected in
the short term.
The long term note receivable was discounted at inception (see
Note 2) and at December 31, 1996, discounting the note at the
current interest rate at which similar loans would be made to
borrowers with similar credit ratings and for the same maturities
yields a fair value which approximates the carrying value.
Based on the borrowing rates currently available to the Company
for loans with similar terms and maturities, the carrying value of
obligations under capital leases approximate fair value.
The carrying amount of deferred revenue approximates fair value
because it is expected to be realized within ninety days.
F-20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article V of the Company's Restated Articles of
Incorporation requires the Company to indemnify any person who is
or is threatened to be made a party to any civil, criminal,
administrative, arbitrative or investigative proceeding
instituted or threatened by reason of the fact that he is or was
a director or officer of the Company or is or was serving at the
request of the Company as a director or officer of another
corporation, partnership, joint venture, trust, other enterprise
or employee benefit plan if the claim is based on actions taken
by such person in good faith with the reasonable belief that such
action was in the best interest of the Company.
Article V of the Company's Restated Articles of
Incorporation further requires the Company to indemnify any
person who is or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the Company by reason of the fact that he is or was a
director or officer of the Company or is or was serving at the
request of the Company as a director or officer of another
corporation, partnership, joint venture, trust, other enterprise
or employee benefit plan if the claim is based on actions taken
by such person in good faith with the reasonable belief that such
action was in the best interest of the Company, provided,
however, that such person generally shall not be indemnified for
negligent or wilful misconduct.
Section 7-109-102 of the Colorado Business Corporation Act
("CBCA") permits indemnification of a director of a Colorado
corporation, in the case of a third party action, if the director
(i) conducted himself or herself in good faith, (ii) reasonably
believed that (a) in the case of conduct in an official capacity,
his or her conduct was in the corporation's best interest, or
(b) in all other cases, his or her conduct was not opposed to the
corporation's best interest, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe that the
conduct was unlawful. The CBCA further provides for mandatory
indemnification of directors and officers who are successful on
the merits or otherwise in litigation.
The above discussion of the Restated Articles of
Incorporation and the CBCA is only a summary and is qualified in
its entirety by the full text of each of the foregoing.
Reference is made to the Restated Articles of Incorporation which
are filed as an Exhibit to the Registration Statement for the
complete text of such documents.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the expenses (other than
underwriting discounts and commissions) expected to be incurred
in connection with the issuance and distribution of the
securities registered hereby, all of which expenses are estimated:
Legal fees and expenses $ 8,500
Accounting fees and other expenses 1,500
--------
Total $10,000
All of the above expenses will be borne by the Company.
Item 26. Recent Sales of Unregistered Securities
The following is a summary of the transactions by the
Company during the last three years involving sales of the
Company's securities that were not registered under the
Securities Act:
In July 1995, the Company entered into a transaction with
Bedford pursuant to which Bedford loaned $1.2 million to the
Company and received an option to loan up to an additional $1.8
million to the Company for a specified
<PAGE>
period of time and
pursuant to certain call provisions. Between July 1995 and July
1996, the Company obtained the full $3.0 million financing from
Bedford. As additional consideration for the loans, between July
1995 and July 1996, the Company issued to Bedford and/or its
affiliates warrants to purchase an aggregate of 750,000 shares of
Common Stock at an exercise price of $4.00 per share. Bedford
was an accredited investor. Bedford received registration rights
with respect to the shares of Common Stock underlying the
Warrants.
In December 1995 and January 1996, through a private
placement, the Company issued for an aggregate purchase price of
$482,500 a total of 482.5 units to 12 purchasers
with each unit consisting of a convertible promissory note with a
principal amount of $1,000 and a warrant to purchase 250 shares
of Common Stock at an exercise price of $4.00 per share. During
June 1996 the Company issued for an aggregate purchase price of
$1,017,500 an additional 1,017.5 units to 15 purchasers
through another private placement under substantially the same
terms. The purchasers of these units were primarily employees,
business associates and affiliates of the Company. Each
purchaser received registration rights with respect to the shares
of Common Stock underlying the warrants.
In November 1996, the Company borrowed $250,000 to fund its
working capital requirements pending closing of a private
placement of Common Stock in December 1996. Fifty percent of the
loan was provided by Keefe, Bruyette & Woods, Inc., the Placement
Agent in the December 1996 private placement, and the balance
equally by certain members of management of the Company, Bedford,
and certain affiliates of Bedford. As consideration for the
loans, the lenders received five-year warrants to purchase an
aggregate of 6,250 shares of the Common Stock at an exercise
price of $6.50 per share. The lenders received registration
rights with respect to the Common Stock to be issued upon
exercise of the warrants.
On December 24, 1996, in a private placement, the Company
issued 1,294,250 shares of Common Stock to 18 purchasers at
a price of $8.50 per share for an aggregate offering price of
$11,001,125. All purchasers were accredited investors.
On December 24, 1996, the Company completed a restructuring
of its debt. The restructuring involved the repayment of
interest owing under the notes issued in connection with the
December 1996/January 1996 and June 1996 private placements and
the Bedford loans. In connection with the restructuring, Bedford
exercised warrants to purchase a total of 255,938 shares of
Common Stock, and received new warrants to purchase 37,500 shares
of Common Stock at an exercise price of $8.50 per share. The
holders of warrants issued in connection with the December 1995
and June 1996 private placements exercised warrants to purchase
an aggregate of 375,000 shares of Common Stock, and received, pro
rata, new warrants to purchase an aggregate of 37,500 shares of
Common Stock at an exercise price of $8.50 per share.
On September 24, 1997, in connection with the acquisition of
PMCIS (f/k/a ADAM Investment Services, Inc.), the Company
completed a private placement of 1,220,749 shares of Common Stock
to 30 purchasers at a price of $6.00 per share, for an
aggregate purchase price of $7,324,494. All purchasers were
accredited investors.
For each of the above sales of securities, the Company
claims exemption from registration, inter alia, under
Section 4(2) of the Securities Act and Regulation D promulgated
thereunder because, to the Company's knowledge, each of the
purchases was made for the purchaser's own investment purposes
and not for further distribution or resale, there were no more
than 35 non-accredited investors, each of whom was sophisticated
and had substantial knowledge of and experience in financial and
business matters and was capable of evaluating the risks of the
subject investment. In addition, the issuer satisfied the other
applicable requirements of Regulation D in connection with each
such offering and sale.
Preferred Stock Conversion
On December 24, 1996, the Company also effected a voluntary
conversion of 173,170 shares of the Company's Series A Preferred
Stock into 59,510 shares of Common Stock. The Company claimed an
exemption from registration under Section 3(a)(9) of the
Securities Act as an exchange of securities of the Company
satisfying the requirements of that section.
<PAGE>
Item 27. Exhibits
The following exhibits have been previously filed or are
filed herewith:
3.1 Restated Articles of Incorporation of the Company
3.2 Bylaws of the Company (1)
4.1 Specimen Common Stock certificate of the Company (3)
4.2 The Articles of Incorporation and Bylaws of the
Company are included as Exhibits 3.1 and 3.2
4.3 Form of warrant issued to each of the lenders in
the November 1996 bridge financing (1)
4.4 Warrant dated December 24, 1996 issued to Keefe,
Bruyette & Woods, Inc (1)
4.5 Form of warrant issued to investors in connection
with the December 1996 restructuring
4.6 Form of Warrant dated December 24, 1996 issued to
Bedford and certain of its associates (1)
5.1 Opinion of Holme Roberts & Owen LLP (2)
10.1 Employment Agreement between the Company and
Kenneth S. Phillips dated as of July 26, 1995(1)
10.2 Amended and Restated Employment Agreement between
the Company and David L. Andrus dated as of
December 17, 1996(1)
10.3 Form of Subscription Agreement between the Company
and each of the lenders in the November 1996
bridge financing(1)
10.4 Form of Registration Rights Agreement between the
Company, each of the lenders in the November 1996
bridge financing, each of the investors in the
December 1996 private placement, and the placement
agent in the December 1996 private placement (1)
10.5 Form of Subscription Agreement between the Company
and each of the investors in the December 1996
private placement. (1)
10.6 Restructuring Agreement dated as of December 24,
1996 among the Company, Bedford Capital Financial
Corporation ("Bedford"),Portfolio Management
Consultants, Inc.("PMC"), Portfolio Brokerage
Services, Inc.("PBS") and Portfolio Technology
Services ("PTS") (1)
10.7 Amended and Restated Registration Rights Agreement
dated as of December 24, 1996 among the Company
and Bedford (1)
10.8 Shareholders Agreement dated as of December 24,
1996 among the Company, Bedford, Kenneth S.
Phillips, David L. Andrus and Phillips & Andrus
LLC (1)
10.9 1994 Incentive Stock Option Plan (1)
10.10 Reimbursement and Pledge Agreement dated January
8, 1997 between the Company and KP3 (1)
10.11 1997 Equity Incentive Plan (5)
10.12 Stock Purchase Agreement among PMC International,
Inc., Michael T. Wilkinson, Scott A. MacKillop,
Gary A. Miller, Michael J. Flinn, Jared L. Shope,
Graham L. Guy, John W. Burgin, and ADAM
Investment Services, Inc., dated as of July 25,
1997 (4)
10.13 Non-Compete Agreement between PMCIS f/k/a ADAM
Investment Services, Inc., and Michael T.
Wilkinson, dated as of September 23, 1997 (4)
10.14 Employment Agreement between PMCIS f/k/a ADAM
Investment Services, Inc., and Scott A. MacKillop,
dated as of September 23, 1997 (4)
10.15 Form of Subscription Agreement, dated as of
September 22, 1997, between the Company and each
of the purchasers in the PMCIS ADAM Private
Placement
10.16 Form of Registration Rights Agreement, dated as of
September 22, 1997, among the Company and the
purchasers in the PMCIS Private Placement
10.17 Term Loan Agreement dated September 10, 1997,
among the Company, KP3 and Citywide Banks/Aurora
National Bank
10.18 Term Loan Agreement dated March 31, 1998, among
the Company, KP3 and Citywide Banks/Aurora
National Bank
21.1 List of Subsidiaries (5)
23.1 Consent of Spicer, Jeffries & Co., Certified
Public Accountants
<PAGE>
23.2 Consent of Holme Roberts & Owen LLP (included in Exhibit 5.1)
24.1 Power of Attorney
(1) Previously filed with the Company's Registration Statement
on Form SB-2 (File No. 333- 21335), dated February 7,
1997.
(2) Previously filed with Amendment Number 2 to the Company's
Registration Statement on Form SB-2 (File No. 333-21335),
dated June 23, 1997.
(3) Previously filed with Amendment Number 3 to the Company's
Registration Statement on Form SB-2 (File No.
333-21335), dated July 2, 1997.
(4) Incorporated by Reference to the Company's Current Report on
Form 8-K (File No. 0-14937), dated October 9, 1997.
(5) Incorporated by Reference to Amendment Number 1 to the
Company's Registration Statement on Form SB-2 (File No.
333-40805), dated February 6, 1998.
Item 28. Undertakings.
The Registrant hereby undertakes that it will:
(1) file, during any period in which it offers to sell
securities, a post-effective amendment to this registration
statement to:
(i) include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change
in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) include any additional or changed material
information on the plan of distribution required in a
post-effective amendment is incorporated by reference from
periodic reports filed by the small business issuer under the
Exchange Act.
(2) for determining liability under the Securities Act,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the provisions
described in Item 24 or otherwise, the Registrant has been
advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will
be governed by a final adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on
Form SB-2 and authorized this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Denver, State of Colorado, on this 27th day of April,
1998.
PMC International, Inc.
a Colorado corporation
By: /s/ Kenneth S. Phillips
Kenneth S. Phillips
President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of
1933, this Statement has been signed by the following persons in
the capacities and on the dates stated.
Title Position Held
Signature With the Registrant Date
/s/ Kenneth S. Phillips President, Chief April 27, 1998
Executive Officer and
Kenneth S. Phillips Director (Principal
Executive Officer)
/s/ Scott A. MacKillop Executive Vice April 27, 1998
President and
Scott A. MacKillop Director
/s/ Stephen M. Ash Chief Financial April 28, 1998
Officer and Treasurer
Stephen Ash (Principal Accounting
and Financial Officer)
/s/ Maureen E. Dobel General Counsel, April 27, 1998
Corporate Secretary
Maureen E. Dobel and Director
/s/ J.W. Nevil Thomas Chairman of the Board April 27, 1998
and Director
J.W. Nevil Thomas
/s/ D. Porter Bibb Director April 28, 1998
D. Porter Bibb
/s/ Emmett J. Daly Director April 27, 1998
Emmett J. Daly
/s/ Richard Hyde Director April 29, 1998
Richard Hyde
<PAGE>
EXHIBIT INDEX
Description
Exhibit
Number
3.1 Restated Articles of Incorporation of the Company
3.2 Bylaws of the Company (1)
4.1 Specimen Common Stock certificate of the Company (3)
4.2 The Articles of Incorporation and Bylaws of the Company
are included as Exhibits 3.1 and 3.2
4.3 Form of warrant issued to each of the lenders in the
November 1996 bridge financing (1)
4.4 Warrant dated December 24, 1996 issued to Keefe,
Bruyette & Woods, Inc (1)
4.5 Form of warrant issued to investors in connection with
the December 1996 restructuring
4.6 Form of Warrant dated December 24, 1996 issued to
Bedford and certain of its associates (1)
5.1 Opinion of Holme Roberts & Owen LLP (2)
10.1 Employment Agreement between the Company and Kenneth S.
Phillips dated as of July 26, 1995(1)
10.2 Amended and Restated Employment Agreement between the
Company and David L. Andrus dated as of December 17,
1996(1)
10.3 Form of Subscription Agreement between the Company and
each of the lenders in the November 1996 bridge
financing(1)
10.4 Form of Registration Rights Agreement between the
Company, each of the lenders in the November 1996
bridge financing, each of the investors in the December
1996 private placement, and the placement agent in the
December 1996 private placement (1)
10.5 Form of Subscription Agreement between the Company and
each of the investors in the December 1996 private
placement. (1)
10.6 Restructuring Agreement dated as of December 24, 1996
among the Company, Bedford Capital Financial
Corporation ("Bedford"),Portfolio Management
Consultants, Inc.("PMC"), Portfolio Brokerage Services,
Inc.("PBS") and Portfolio Technology Services ("PTS")
(1)
10.7 Amended and Restated Registration Rights Agreement
dated as of December 24, 1996 among the Company and
Bedford (1)
10.8 Shareholders Agreement dated as of December 24, 1996
among the Company, Bedford, Kenneth S. Phillips, David
L. Andrus and Phillips & Andrus LLC (1)
10.9 1994 Incentive Stock Option Plan (1)
10.10Reimbursement and Pledge Agreement dated January 8,
1997 between the Company and KP3 (1)
10.111997 Equity Incentive Plan (5)
10.12Stock Purchase Agreement among PMC International, Inc.,
Michael T. Wilkinson, Scott A. MacKillop, Gary A.
Miller, Michael J. Flinn, Jared L. Shope, Graham L.
Guy, John W. Burgin, and ADAM Investment Services,
Inc., dated as of July 25, 1997 (4)
10.13Non-Compete Agreement between PMCIS f/k/a ADAM
Investment Services, Inc., and Michael T. Wilkinson,
dated as of September 23, 1997 (4)
10.14Employment Agreement between PMCIS f/k/a ADAM
Investment Services, Inc., and Scott A. MacKillop,
dated as of September 23, 1997 (4)
10.15Form of Subscription Agreement, dated as of
September 22, 1997, between the Company and each of the
purchasers in the PMCIS ADAM Private Placement
10.16Form of Registration Rights Agreement, dated as of
September 22, 1997, among the Company and the
purchasers in the PMCIS Private Placement
10.17Term Loan Agreement dated September 10, 1997, among the
Company, KP3 and Citywide Banks/Aurora National Bank
10.18Term Loan Agreement dated March 31, 1998 among the
Company, KP3 and Citywide Banks/Aurora National Bank
21.1 List of Subsidiaries (5)
23.1 Consent of Spicer, Jeffries & Co., Certified Public
Accountants
23.2 Consent of Holme Roberts & Owen LLP (included in Exhibit 5.1)
24.1 Power of Attorney
<PAGE>
(1) Previously filed with the Company's Registration Statement
on Form SB-2 (File No. 333- 21335), dated February 7,
1997.
(2) Previously filed with Amendment Number 2 to the Company's
Registration Statement on Form SB-2 (File No. 333-21335),
dated June 23, 1997.
(3) Previously filed with Amendment Number 3 to the Company's
Registration Statement on Form SB-2 (File No.
333-21335), dated July 2, 1997.
(4) Incorporated by Reference to the Company's Current Report on
Form 8-K (File No. 0-14937), dated October 9, 1997.
(5) Incorporated by Reference to Amendment Number 1 to the
Company's Registration Statement on Form SB-2 (File No.
333-40805), dated February 6, 1998.
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
PMC INTERNATIONAL, INC.
Pursuant to Section 7-110-107 of the Colorado Business
Corporations Act, the Board of Directors of PMC International,
Inc. (the "corporation") duly adopted the following Restated
Articles of Incorporation of the corporation:
ARTICLE I
The name of the corporation is: PMC International, Inc.
ARTICLE II
The period of duration of the corporation shall be perpetual.
ARTICLE III
The purposes for which the corporation is organized are as
follows:
1. To engage in and carry on a securities business,
including each and every aspect thereof, in any and all
capacities to the full extent permitted by law, including a
general brokerage, underwriting and investment business; to act
as brokers, dealers, traders, investment bankers and investors in
securities; to underwrite and distribute, on behalf of itself and
of others, securities and to participate with others in any such
underwriting or distribution; to negotiate, or to assist or
participate in the negotiation of, private placements of
securities; and to do any and all things which may be useful in
connection with the foregoing activities or incidental to the
conduct of such activities and whether or not in connection
therewith, to purchase, subscribe for, borrow, acquire, hold,
exchange, sell, distribute, assign, transfer, lend, mortgage,
pledge, hypothecate, guarantee, deal in or otherwise effect any
and all transactions of any kind, character or description
whatsoever in or with respect to securities, and with respect to
foreign exchange, acceptances and commercial paper of every kind,
character or description.
2. To engage in the business of furnishing investment
counsel, management and advice.
3. To engage in any lawful business.
4. To have all of the powers now or hereafter given by law
to corporations so organized, and to pursue these purposes, and
exercise its powers, within or without the State of Colorado, and
within or without the United States, directly or indirectly, and
through any agents, trustees, nominees, subsidiary or affiliated
corporations or other representatives or legal entities which it
chooses to use.
5. To contract with any person or legal entity, public or
private, for any purpose.
6. To buy, rent or otherwise acquire, to hold, use, or
manage, and to sell, lease or otherwise dispose of real or
personal property of any kind at any location.
7. To lend money and guarantee the obligation of other
persons or legal entities, and to take and hold any type of
security in doing so.
8. To borrow money, and to give any type of security in
doing so, including the mortgaging, assigning, pledging or
hypothecating of any of its assets.
9. To enter into joint ventures, general or limited
partnerships, syndicates, associations or other arrangements for
pursuing any of its purposes or exercising any of its powers.
10. To engage in any other business or trade which, in the
opinion of the Board of Directors, may be advantageously carried
on in connection with or auxiliary to such business and to do all
such things as are incidental or conducive to the above purposes
or any of them.
11. The foregoing enumeration of purposes shall not be
deemed to limit or to restrict in any manner the exercise of
other and further rights and powers which may now or hereafter be
allowed or permitted by law; the purposes specified in each of
the paragraphs of this Article III shall not be restricted by
reference to or inference from the terms of any other paragraph,
but shall be regarded as independent purposes.
ARTICLE IV
1. The aggregate number of shares of capital stock which
the Corporation shall have the authority to issue is Fifty
Million (50,000,000) shares of a class of common stock with a par
value of $0.01, and Five Million (5,000,000) shares of a class of
preferred stock without par value. Said shares may be issued for
money, property, services, or other things of value and, when
issued, shall be issued fully paid and non-assessable.
2. Common Stock. The preferences and relative
participating, optional or other special rights, qualifications,
limitations, or restrictions of the common stock of the
Corporation are as follows:
a. Dividends. Dividends in cash, property, or shares
of the corporation may be paid upon the common stock, as and when
declared by the Board of Directors, out of funds of the
corporation to the extent and in the manner permitted by law.
b. Payment on Liquidation. Upon any liquidation,
dissolution, or winding-up of the corporation, and after payment
or the setting aside of amounts sufficient to provide for payment
in full of all debts and liabilities of and other claims against
the corporation, the remaining net assets of the corporation
shall be distributed pro rata to the holders of the common stock,
except as preferential payments of assets may be first paid to
holders of preferred shares in accordance with preferences
afforded any preferred shares which may subsequently be issued.
The Board of Directors may, from time to time, distribute to the
shareholders in partial liquidation, out of stated capital, or
capital surplus of the corporation, a portion of its assets, in
cash or property, in the manner permitted by law.
c. Voting Rights. Each holder of common stock shall
be entitled to one vote, or fraction of a vote, for each share,
or corresponding faction of a share, of common stock held by each
such shareholder.
d. Pre-Emptive Rights. Each shareholder of the
corporation shall not, solely because of his ownership of any
shares of common or preferred stock, have a pre-emptive right to
purchase, subscribe for, and take his proportionate part of any
stock now or hereafter authorized or any part of the notes,
debentures, bonds, or other securities of the corporation
convertible into or carrying options or warrants to purchase any
stock of the corporation when issued, offered, and sold.
e. Transfer of Shares. The corporation shall have
the right by appropriate action to impose restrictions upon the
transfer of any shares of its stock or any interest therein, from
time to time issued, provided that such restrictions as may from
time to time be imposed, or notice of the substance thereof,
shall be set forth on the face or back of the certificate
representing such shares of stock.
3. Preferred Stock. With respect to the preferred
shares, the Board of Directors of the Corporation is hereby
vested with the authority to establish series and fix and
determine the variations in the relative rights and preferences
as between series, provided that all shares of the preferred
stock shall be identical except as to the following relative
rights and preferences, as to which there may be variations
between different series: the rate of dividend, the time of
payment of dividends, whether dividends are cumulative, and the
date from which any dividends shall accrue; whether shares may be
redeemed and, if so, the redemption price and the terms and
conditions of redemption; the amount payable upon shares in event
of involuntary liquidation; the amount payable upon shares in
event of voluntary liquidation, sinking fund or other provisions,
if any, for the redemption or purchase of shares; the terms and
conditions on which shares may be converted, if the shares of any
series are issued with the privilege of conversion; voting
powers, if any; and any other variations which may be specified
by the Board of Directors as permitted by applicable law.
4. Series A Preferred Stock. Of the 5,000,000 shares of
preferred stock authorized, 450,000 shares have been designated
as "$0.325 Cumulative Convertible Series A Preferred Stock"
(hereafter referred to as the "Series A Preferred Stock"). The
preferences and relative participating, optional or other special
rights, qualifications, limitations, or restrictions of the
Series A Preferred Stock of the Corporation are as follows:
a. Dividends. The dividend rate for the Series A
Preferred Stock is thirty-two and one-half cents ($0.325) per
share per annum (equal to 13% of the purchase price of the
shares), and no more. The holders of the Series A Preferred Stock
shall be entitled to receive semiannually on the fifteenth day of
January and July in each year (payable to the record holders of
the shares as of the last day of the calendar month immediately
preceding the date for payment), but only when and as authorized
by the Board of Directors of the Corporation, out of the assets
of the Corporation legally available for dividends, cash
dividends at the annual rate of thirty-two and one-half cents
($0.325) per share for each fiscal year of the Corporation,
without interest, before any dividends shall be paid or declared,
or any other distribution shall be ordered or made, upon any
other class of stock. Dividends on shares of the Series A
Preferred Stock shall commence to accrue and shall be cumulative
from and including the date of issuance thereof. Notwithstanding
the foregoing, the first payment of dividends due respecting the
Series A Preferred Stock shall be due and payable on July 15,
1991. Provided, however, that the declaration and payment of
dividends on the Series A Preferred Stock shall be subject to and
in accordance with the following:
i. If any dividends payable on the Series A
Preferred Stock with respect to any fiscal year of the
Corporation are not paid for any reason, the right of the holders
of the Series A Preferred Stock to receive payment of such
dividend shall not lapse or terminate, but said unpaid dividend
or dividends shall accumulate and shall be paid without interest
to the holders of the Series A Preferred Stock, when and as
authorized by the Board of Directors of the Corporation, before
any sum or sums shall be set aside for or applied to the purchase
or redemption of the Series A Preferred Stock and before any
dividends shall be paid or declared, or any other distribution
shall be ordered or made, upon any other class of stock.
ii. No dividends shall be paid on the Series A
Preferred Stock at such time as such payment would violate
Colorado law.
iii. With respect to the initial dividend payment
due July 15, 1991 for the period ending June 30, 1991, the
Corporation shall pay a prorated amount of the annual dividend on
such issued Series A Preferred Stock for the period of time from
the date of issuance of such Series A Preferred Stock until
June 30, 1991.
b. Redemption. At the option of the Corporation, and
subject to the satisfaction of the conditions described in this
section, shares of the Series A Preferred Stock may be redeemed,
in whole or in part, at any time and from time to time after the
date that is thirteen months from the date of issuance of the
shares of Series A Preferred Stock to be redeemed, as follows:
i. Redemption shall be permitted only if, at the
time that the notice of redemption is given (as described in
paragraph 3(c)(iii) below), the average high bid prices of the
Corporation's common stock for the 15 consecutive business day
period commencing 20 business days prior to the date on which the
notice is given is greater than the conversion price of the
Series A Preferred Stock as described in section 3(f) below, and
only if the after-tax earnings of the Corporation are at least
twenty cents ($0.20) per share for the period of the four full
fiscal quarters immediately preceding the date on which the
notice of redemption is given. The figure of $0.20 per share
earnings described in the preceding sentence shall be subject to
equitable adjustment whenever there shall occur a stock split,
combination, reclassification or other similar event involving
the Corporation's common stock. If less than all shares of the
Series A Preferred Stock are to be redeemed in a single
transaction, the number of shares to be redeemed from each
stockholder shall be on a pro rata basis, based upon the number
of shares of Series A Preferred Stock owned by each.
ii. The redemption price per share under this
section 3(c) shall be $2.75 per share, plus an amount equal to
unpaid cumulative dividends accrued to the date of redemption
(whether or not declared), which shall be accrued at the annual
dividend rate provided in section 3(b) above, pro rata to the
date of redemption, whether or not such date of redemption is a
regular dividend payment date. The redemption price set forth
herein shall be subject to equitable adjustment whenever there
shall occur a stock split, combination, reclassification or other
similar event involving the Series A Preferred Stock.
iii. At least 45 days prior to the date fixed for
redemption pursuant to this paragraph 3(c)(iii) (the date fixed
for redemption shall hereinafter be referred to as the
"Redemption Date"), written notice (hereinafter referred to as
the "Redemption Notice") shall be mailed postage prepaid to each
holder of record of the Series A Preferred Stock which is to be
redeemed, at its last address shown on the records of the
Corporation as of a record date not more than ten days prior to
the date of giving the Redemption Notice. Any Redemption Notice
which is mailed in accordance with the provisions hereof shall be
conclusively presumed to have been duly given, whether or not the
stockholder received such notice, and the failure to duly give
such notice by mail, or any defect in such notice, to any
particular holders of any of the Series A Preferred Stock
designated for redemption shall not affect the validity of the
proceedings where proper notice was given for the redemption of
any other shares of Series A Preferred Stock.
iv. The Redemption Notice shall specify the
number of shares of Series A Preferred Stock of such stockholder
to be redeemed, the Redemption Date, the redemption price at
which the shares of Series A Preferred Stock are to be redeemed,
the location where payment of the redemption price is to be made
upon surrender of such shares, the conversion rate then in
effect, and shall state that accrued dividends to the Redemption
Date will be paid as specified in said Redemption Notice, that
from and after the Redemption Date dividends thereon will cease
to accrue, and that conversion rights of such shares shall cease
and terminate at the close of business on the Redemption Date.
v. Each holder of shares of the Series A
Preferred Stock to be redeemed shall surrender the certificate or
certificates representing such shares to the Corporation at the
place designated in the Redemption Notice, and thereupon the
applicable redemption price for such shares shall be paid to the
order of the person or entity whose name appears on such
certificate or certificates and each surrendered certificate
shall be canceled and retired.
c. Non Voting Stock. The holders of the shares of
the Series A Preferred Stock shall have no voting rights
whatsoever except as may be required by Colorado law. Cumulative
voting shall not be permitted.
d. Liquidation or Dissolution. In the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, the holders of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, an
amount per share equal to $2.50 per share (plus an amount equal
to unpaid cumulative dividends) without interest, and no more,
before any payment shall be made to holders of the shares of the
Corporation's common stock. After such payment shall have been
made in full to the holders of the Series A Preferred Stock or
funds necessary for such payment shall have been set aside by the
Corporation in trust for the account of the holders of the Series
A Preferred Stock so as to be available for such payment, holders
of the Series A Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the
Corporation and shall have no further rights of conversion. A
merger or consolidation of the Corporation with or into any other
corporation, share exchange, or sale or conveyance of all or any
part of the assets of the Corporation (which shall not in fact
result in the liquidation of the Corporation and the distribution
of assets to stockholders) shall not be deemed to be a voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation within the meaning of this section 3(e). Whenever
the distribution provided for herein shall be paid in property
other than cash, the value of such distribution shall be the fair
market value of such property as determined in good faith by the
Board of Directors of the Corporation.
e. Conversion Privilege. The holders of shares of
Series A Preferred Stock shall have the right, at their option,
to convert such shares into shares of common stock of the
Corporation at any time prior to four (4) years after the date of
issue, on and subject to the following terms and conditions:
i. The shares of Series A Preferred Stock shall
be convertible into fully paid and nonassessable shares of common
stock of the Corporation at the option of the holder thereof and
in the manner hereinafter provided. In case shares of Series A
Preferred Stock are called for redemption under section 3(c)
above, the right to convert such shares shall terminate at the
close of business on the Redemption Date (described in paragraph
3(c)).
ii. Shares of the Series A Preferred Stock may be
converted into full shares of common stock of the Corporation at
the rate of one (1) share of common stock for each one (1) share
of Series A Preferred Stock being converted, which conversion
rate shall be subject to adjustment as hereinafter provided (this
is equivalent to a conversion price of $2.50, which is determined
by dividing $2.50 by the number of shares of common stock to be
obtained upon conversion of one (1) share of Series A Preferred
Stock). In no event shall the holder of Series A Preferred Stock
be permitted to convert in a single transaction less than a
number of shares of Series A Preferred Stock equal to the lesser
of (i) 50 shares of Series A Preferred Stock, or (ii) the total
number of shares of Series A Preferred Stock then owned by said
holder.
iii. No fraction of shares of stock of any class
of the Corporation at any time authorized shall be issuable upon
any conversion of the Series A Preferred Stock. If more than one
share
<PAGE>
of Series A Preferred Stock shall be surrendered for conversion
at one time by the same holder, the number of full shares
issuable upon conversion thereof shall be computed on the basis
of the aggregate number of such shares so surrendered multiplied
by the conversion rate. In lieu of issuing any fraction of a
share, the person entitled to an interest in respect of such
fraction shall be paid the cash equivalent of such fraction based
upon the market value thereof on the date of such conversion,
determined as follows. The current market price per share of
common stock at any date shall be deemed to be (i) the average of
the high and low bids as reported on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
for the 15 consecutive business day period commencing 20 business
days before the date in question (the "Trading Period"), or (ii)
if the common stock in listed on any national securities
exchange, the average of the daily closing prices for the same
Trading Period, or (iii) if neither (i) nor (ii) apply, the
conversion price then in effect.
iv. In order to convert Series A Preferred Stock
into common stock, the holder thereof shall surrender, at the
office of the Corporation's transfer agent for the Series A
Preferred Stock or at such other office or offices as the Board
of Directors of the Corporation may designate, the certificate or
certificates representing the share or shares of Series A
Preferred Stock to be converted, duly endorsed to the Corporation
or in blank, together with a written request for conversion. The
Corporation agrees to use its reasonable efforts to maintain, to
the extent required by the Securities Act of 1933, as amended, an
effective Registration Statement under said Act covering the
Series A Preferred Stock and the common stock into which it may
be converted, during the period that the Series A Preferred Stock
is convertible and, during such period, to qualify said
securities or obtain an exemption from such qualification under
the securities laws of the states in which the Series A Preferred
Stock is originally offered by the Corporation and in such other
states as the Corporation determines in its sole discretion. The
Corporation may decide not to seek qualification in any
particular state if it will require unreasonable effort or
expense, and it is acknowledged that the Corporation may not be
able to obtain qualification of said securities in all states in
which the ultimate purchasers of said securities reside.
Notwithstanding any other provision of this Statement of Series
Shares to the contrary, the obligation of the Corporation to
effectuate any requested conversion of Series A Preferred Stock
into common stock is subject to the existence of a then effective
Registration Statement under the Act covering the proposed
transaction and that the transaction may be so consummated by
legally issuing and delivering common stock for the Series A
Preferred Stock under the securities laws of the state in which
the holder of the Series A Preferred Stock then resides. Series
A Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day of such
surrender for conversion, and the person or persons entitled to
receive the common stock issuable, upon such conversion shall be
treated for all purposes as the record holder or holders of such
common stock at such time. As promptly as practicable on or
after the date of any conversion, the Corporation shall issue and
deliver a certificate or certificates representing the number of
shares of common stock issuable upon such conversion, together
with cash in lieu of any fraction of a share (as described in
paragraph 3(f)(iii)), to the person or persons entitled to
receive the same. In case of a conversion of only a part of the
shares owned by any holder of Series A Preferred Stock, the
Corporation shall also issue and deliver to such holder a new
certificate of Series A Preferred Stock representing the number
of shares of such Series A Preferred Stock not converted by such
holder. All shares which may be issued upon conversion of shares
of the Series A Preferred Stock shall upon issue be fully paid
and nonassessable by the Corporation and free from all taxes,
liens, charges and security interests with respect to the issue
thereof. The Corporation shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares of common stock upon
conversion in a name other than of the holder of the shares of
the Series A Preferred Stock converted, and the Corporation shall
not be required to issue or deliver any such share unless and
until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall
establish to the satisfaction of the Corporation that such tax
has been paid.
v. All shares of Series A Preferred Stock which
shall have been surrendered for conversion as herein provided
shall no longer be deemed to be outstanding and all rights with
respect to such shares shall forthwith cease, except only the
right of the holders thereof to receive common stock in exchange
therefor. No payment or adjustment shall be made upon any
conversion on account of any dividends accrued on the shares of
the Series A Preferred Stock surrendered for conversion or on
account of any dividends on the common stock issued upon such
conversion.
vi. In case the Corporation shall (i) pay a
dividend on its common stock in shares of its capital stock, (ii)
subdivide its outstanding shares of common stock, (iii) combine
its outstanding shares of common stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of common
stock any shares of capital stock of the Corporation, the
conversion rate in effect immediately prior thereto shall be
proportionately adjusted so that the holder of any shares of
Series A Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of capital
stock of the Corporation which the holder would have owned or
would have been entitled to receive after the happening of any of
the events described above, had such shares of Series A Preferred
Stock been converted immediately prior to the happening of such
event. Such adjustments shall be made whenever any of the events
listed shall occur. An adjustment made pursuant to this
paragraph 3(f)(vi) shall become effective immediately after the
record date in the case of a dividend and shall become effective
immediately after the effective date in the case of a
subdivision, combination, or reclassification.
vii. In the event the Corporation fails to timely
and fully pay any of the dividends due to be paid under section
3(b) above on the dates of July 15, 1991, January 15, 1992,
July 15, 1992, and January 15, 1993, then each time any of such
events occurs, the initial conversion rate of one (1) share of
common stock for each one (1) share of Series A Preferred Stock
shall be increased by one-tenth (0.1) share of common stock for
each one (1) share on Series A Preferred Stock. In the event
that all four of the dividend payments were not timely and fully
made, the conversion rate would accordingly be changed to one and
four-tenths (1.4) shares of common stock for each one (1) share
of Series A Preferred Stock. Any dividends required to be paid
to the holders of the Series A Preferred Stock shall be deemed to
have been timely and fully made if payment of the dividend is
mailed by the Corporation, postage prepaid, no later than the
close of business on the day payment is required. In the event
that any of the above four dividend payments is not timely and
fully made, the adjustment in the conversion rate specified in
this paragraph shall be deemed to be effective immediately after
the close of business on the date that payment of the dividend
was otherwise required to be paid. The adjustment in the
conversion rate specified in this paragraph shall not relieve the
Corporation from its obligation to cumulate the unpaid dividend
in accordance with paragraph 3(b)(i) above.
viii.No adjustment in the conversion rate under
paragraph 3(f)(vi) shall be required unless such adjustment would
require an increase or decrease in such rate of at least 1%,
provided, however, that any adjustment which by reason of this
paragraph is not required to be made, shall be carried forward
and taken into account in any subsequent adjustment. All
calculations under this section 3(f) shall be made to the nearest
100th of a share.
ix. Except as expressly provided in this section
3(f), no adjustment in the conversion rate of the Series A
Preferred Stock shall occur upon the issuance of any stock of the
Corporation for any other reason.
x. Any conversion rate determined or adjusted as
herein provided shall remain in effect until further adjustment
is required herein. Upon each adjustment of the conversion rate
a written instrument signed by an officer of the Corporation
setting forth such adjustment and the computation of the summary
of the facts upon which it is based, and accompanied by copies of
the
<PAGE>
resolutions, if any, of the Board of Directors passed in
connection therewith shall forthwith be filed with the
Corporation's transfer agent for the Series A Preferred Stock and
made available for inspection by the holders of Series A
Preferred Stock; and any adjustments so evidenced, made in good
faith, shall be binding upon all stockholders and upon the
Corporation. The Corporation shall also, as promptly as
practicable, cause a notice, stating that such an adjustment has
been made and setting forth the adjusted conversion rate, to be
mailed postage prepaid to each holder of record of outstanding
shares of the Series A Preferred Stock, at their addresses as the
same appear on the stock records of the Corporation.
Notwithstanding the foregoing notice provisions, failure of the
Corporation to give such notice shall not invalidate such
corporate action of the Corporation.
f. No Implied Limitations. Except as otherwise
provided by express provisions of this Statement of Series
Shares, nothing herein shall limit, by inference or otherwise,
the discretionary right of the Board of Directors to classify and
reclassify and issue any shares of preferred stock and to fix or
alter all terms thereof to the full extent provided in the
Articles of Incorporation, as amended, of the Corporation.
g. General Provisions. In addition to the above
provisions with respect to the Series A Preferred Stock, such
Series A Preferred Stock shall be subject to and be entitled to
the benefits of, the provisions set forth in the Corporation's
articles of incorporation, as amended, with respect to preferred
stock generally. As used throughout this document, common stock
of the Corporation shall mean its existing class of $0.01 par
value common stock. The holders of the $0.325 cumulative
Convertible Series A Preferred Stock shall not have a preemptive
right to acquire unissued or treasury shares of any class of
stock or securities convertible into such shares or carrying a
right to subscribe to or acquire shares.
ARTICLE V
Indemnification
1. This corporation shall, subject to the provisions of
this Article V, indemnify any person who was or is a party or is
threatened to be made a party in any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or
was a director, officer, employee, or agent of the corporation or
is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against
expenses, including reasonable attorneys' fees, judgments, fines,
and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit, or proceeding if he
acted in good faith and in a manner he reasonably believed to be
in the best interest of this corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
2. This corporation shall, subject to the provisions of
this Article V, indemnify any person who was or is a party or is
threatened to be made a party in any threatened, pending, or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation
or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against
expenses, including reasonable attorneys' fees, actually and
reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in the best interest of
the corporation; provided, however, no indemnification shall be
made in respect of any claim, issue, or matter as to which such
person has been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which the action,
suit, or proceeding was brought determines upon application that,
despite the adjudication of liability, in view of all of the
circumstances of the case, such person is fairly and reasonably
entitled to indemnification for such expenses as the court deems
proper.
3. Indemnification under paragraphs 1 or 2 of this Article
V, unless ordered by a court, shall be made by the corporation
only as authorized in a specific case upon a determination that
indemnification of the director, officer, employee, or agent is
proper in the circumstances because he met the applicable
standards of conduct set forth. Such determination shall be made
by the Board of Directors by a majority vote of a quorum of
directors who are not parties to such action, suit, or
proceeding, or if such a quorum is not obtainable, or even if
obtainable, if a disinterested director so directs, by
independent legal counsel in a written opinion or by the
shareholders. Notwithstanding the foregoing, to the extent that
a director, officer, employee, or agent of this corporation has
been successful on the merits in defense of any action, suit, or
proceeding referred to in paragraphs 1 or 2 of this Article V, or
in defense of any claim, issue, or matter therein, he shall be
indemnified against all expenses, including attorneys' fees,
actually and reasonably incurred by him in connection therewith.
4. Prior to final disposition of any action, suit, or
proceeding, this corporation may advance monies for expenses
incurred by any person who might be eligible for indemnification
hereunder upon receipt of an undertaking by or on behalf of such
person to repay all amounts advanced unless it is ultimately
determined that he is entitled to be indemnified and will be
indemnified by the corporation hereunder.
ARTICLE VI
The number of directors may be increased or decreased from
time to time by amendment to the bylaws of the corporation; but
no decrease shall have the effect of shortening the term of any
incumbent director. Any directorship to be filled by reason of
an increase in the number of directors shall be filled by the
affirmative vote of the majority of the directors then in office,
though less than a quorum of the Board of Directors.
ARTICLE VII
Cumulative voting shall not be permitted in the election of
directors.
ARTICLE VIII
Registered Office; Agent
The registered office of the corporation shall be 555 17th
Street, 14th Floor, Denver, Colorado 80202 and the registered
agent at such office shall be Dottie DeMark.
ARTICLE IX
Rights of Directors and Officers
to Contract with Corporation
None of the directors or officers of the corporation shall,
in the absence of fraud, be disqualified from his office by
dealing or contracting with the corporation either as a lender,
purchaser, or otherwise, nor shall any firm, association, or
corporation of which he shall be a member, or in which he may be
pecuniarily interested in any manner be disqualified. No
director or officer, nor any firm, association or
<PAGE>
corporation with which he is connected as aforesaid, shall be
liable to account to the corporation or its shareholders for any
profits realized by him from or through any such transaction or
contract, it being the express purpose and intent of this Article
to permit the corporation to buy from, sell to, or otherwise deal
with partnerships, firms, or corporations of which the directors
and officers of the corporation, or any one or more of them, may
be members, directors, or officers, or in which they or any of
them may have a pecuniary interest, and the contracts of the
corporation, in the absence of fraud, shall not be void or
voidable or affected in any manner by reason of any such
membership or interest.
ARTICLE X
Bylaws
A majority of the Board of Directors of the corporation
shall have the power to amend, alter, or repeal the bylaws of the
corporation at any regular meeting or at any special meeting
called for that purpose.
ARTICLE XI
Amendments
These Articles of Incorporation may be amended from time to
time by a vote of two-thirds of the shares of stock entitled to
vote thereon.
In all other respects, the Articles of Incorporation of the
Corporation shall remain in full force and effect except as
expressly amended hereby.
ARTICLE XII
The Board of Directors may, from time to time, distribute to
the shareholders of the corporation in partial liquidation, out
of stated capital or capital surplus of the corporation, a
portion of its assets, in cash or in property or partly in cash
and partly in property.
IN WITNESS WHEREOF, PMC International, Inc. has caused these
Restated Articles of Incorporation to be signed by the Executive
Vice President and the Corporate Secretary this 24th day of
April, 1998.
PMC International, Inc.
By: /s/ Scott A. MacKillop
-----------------------------
Scott A. MacKillop,
Executive Vice President
and Chief Operating Officer
ATTEST
By: /s/ Maureen E. Dobel
------------------------------
Maureen E. Dobel, Corporate
Secretary
<PAGE>
Exhibit 10.15--Form of Subscription Agreement, dated as of
September 22, 1997, between the Company and each of the
purchasers in the PMCIS Private Placement.
PMC International, Inc.
SUBSCRIPTION AGREEMENT
Dated as of September 22, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
1. Authorization; Subscription for Shares......................1
1.1 Authorization of Shares...............................1
1.2 Sale and Purchase of Shares...........................1
1.3 Closing...............................................1
2. Conditions to Subscriber's Obligations......................2
2.1 Representations and Warranties........................2
2.2 Performance; No Default...............................2
2.3 Officer's Certificate.................................2
2.4 Opinion of Counsel....................................2
2.5 Purchase Permitted by Applicable Laws.................2
2.6 Registration Rights Agreement.........................2
2.7 Proceedings and Documents.............................3
2.8 Sale of Other Shares..................................3
2.9 Closing of ADAM Acquisition...........................3
3. Conditions to the Company's Obligations.....................3
3.1 Representations and Warranties........................3
3.2 Letter from the Placement Agent.......................3
3.3 Payment for the Shares................................3
3.4 Sale Permitted by Applicable Laws.....................3
4. Representations and Warranties of the Company...............3
4.1 Organization, Standing and Qualification..............4
4.2 Capitalization........................................4
4.3 Authorization and Validity of Agreements..............5
4.4 No Conflict with Other Instruments; No Approvals
Required Except as Have Been Obtained.................5
4.5 No Material Adverse Change............................5
4.6 Full Disclosure.......................................6
4.7 Financial Statements..................................6
4.8 Use of Proceeds.......................................7
4.9 Litigation............................................7
4.10 Taxes.................................................7
4.11 Compliance with Laws..................................7
4.12 Private Offering......................................8
4.13 SEC Reports...........................................8
4.14 Intellectual Property.................................8
4.15 Investment Company Act................................8
5. Representations and Warranties of the ......................8
5.1 Due Organization, Good Standing and Authority.........8
5.2 Authorization and Validity of Agreement...............9
5.3 Accredited Investor...................................9
5.4 Investment Intent.....................................9
5.5 Accuracy and Reliance.................................9
6. Compliance with the Securities Act.........................10
6.1 Certificates Evidencing the Shares...................10
6.2 Notice of Proposed Transfer; Opinion of Counsel......10
7. Miscellaneous..............................................11
7.1 Filing of Registration Statement.....................11
7.2 New Issuance of Shares...............................11
7.3 Survival of Representations and Warranties;
Severability.....................................................11
7.4 Termination of Agreement.............................11
7.5 Amendment; Waiver....................................11
7.6 Notices, etc.........................................11
7.7 Successors and Assigns...............................12
7.8 Descriptive Headings.................................12
7.9 Governing Law........................................12
7.10 Counterparts.........................................12
7.11 Integration; Severability............................12
SCHEDULE A -- Information as to Subscriber Shares
EXHIBIT A -- Form of Opinion of Holme Roberts & Owen LLP,
Counsel for the Company
EXHIBIT B -- Form of Registration Rights Agreement
EXHIBIT C -- Form of Letter of Placement Agent
CONFIDENTIAL INVESTOR QUESTIONNAIRE
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (the "Agreement"), dated as of
September 22, 1997, between PMC International, Inc., a Colorado
corporation (the "Company"), and the Subscriber whose name
appears on the signature page hereto (the "Subscriber").
WHEREAS, the Company desires to sell in a private placement
(the "Offering") shares of its common stock, par value $.01 per
share (the "Common Stock"), as set forth in the Private Placement
Memorandum, dated August 21, 1997, prepared by the Company
(together with all exhibits contained therein and any amendments
or supplements thereto, the "Memorandum"), on the terms and
conditions hereinafter set forth, and the Subscriber desires to
purchase that number of shares of Common Stock set forth on
Schedule A hereto; and
WHEREAS, this Agreement sets forth the terms and conditions
upon which the Company will sell the shares of Common Stock to
the Subscriber and the Subscriber will purchase the shares of
Common Stock from the Company.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, the parties hereto hereby agree as follows:
1. Authorization; Subscription for Shares.
Authorization of Shares. The Company has authorized
the issuance and sale pursuant to the Offering of that number of
shares (the "Shares") of the Common Stock necessary to raise
aggregate proceeds of approximately $7,000,000.
Sale and Purchase of Shares. In reliance upon the
representations and warranties made herein and subject to the
satisfaction or waiver of the terms and conditions of this
Agreement, the Company will issue and sell to the Subscriber and
the Subscriber will purchase from the Company, at the Closing
provided for in Section 1.3, the number of Shares set forth
opposite such Subscriber's name in Schedule A at the purchase
price set forth on Schedule A. Contemporaneously with entering
into this Agreement, the Company is entering into separate
Subscription Agreements (the "Other Agreements") substantially
identical with this Agreement with each of the other subscribers
(the "Other Subscribers"), providing for the sale to each of the
Other Subscribers, at such Closing, of the number of Shares
specified opposite such Other Subscriber's names in Schedule A of
the Other Agreements. The sales of the Shares to the Subscriber
and to each of the Other Subscribers are to be separate sales,
and this Agreement and the Other Agreements are to be separate
agreements.
Closing. Subject to the terms and conditions of this
Agreement, the sales of the Shares to be purchased by the
Subscriber and the Other Subscribers shall take place at the
offices of Holme Roberts & Owen LLP, 1700 Lincoln Street, Suite
4100, Denver, Colorado 80203, at 11:00 a.m., Denver time, at a
closing (the "Closing") on September 19, 1997, or on such other
business day thereafter as may be agreed upon by the Company, the
Subscriber and the Other Subscribers (the "Closing Date"). At
the Closing, the Company will deliver to the Subscriber the
certificates registered in the Subscriber's name (or in the name
of the Subscriber's nominee), representing the aggregate number
of Shares to be purchased by the Subscriber, against delivery by
the Subscriber to the Company of immediately available funds in
the amount of the purchase price therefor.
2. Conditions to Subscriber's Obligations. The
Subscriber's obligation to purchase and pay for the Shares to be
sold to such Subscriber at the Closing shall be subject to the
fulfillment, prior to or at the Closing, of the following
conditions:
Representations and Warranties. The representations
and warranties of the Company contained in this Agreement shall
have been true and correct in all material respects when made and
shall be true and correct in all material respects on and as of
the Closing Date, as if made on and as of the Closing Date.
Performance; No Default. The Company shall have
performed and complied with all agreements and conditions
contained in this Agreement required to be performed or complied
with by it prior to or at the Closing.
Officer's Certificate. The Company shall have
delivered to the Subscriber an officer's certificate, dated as of
the Closing Date, certifying that the conditions specified in
Sections 2.1, 2.2 and 2.8, have been fulfilled and setting forth
in reasonable detail the capitalization (including the long-term
and short-term debt) and the amount of outstanding warrants and
options of the Company giving effect to the Offering.
Opinion of Counsel. The Subscriber shall have
received an opinion from Holme, Roberts & Owen LLP, counsel for
the Company, as to the matters set forth in Exhibit A hereto,
addressed to such Subscriber and dated as of the Closing Date.
Purchase Permitted by Applicable Laws. The offering,
issuance, purchase and sale of, and payment for, the Shares to be
purchased by the Subscriber on the Closing Date on the terms and
conditions herein provided (a) shall not violate any applicable
law, governmental regulation, court order or injunction
(temporary or permanent) and (b) shall not subject the Subscriber
to any tax, penalty, liability or other material adverse effect
under or pursuant to any applicable law or governmental
regulation, and the Subscriber shall have received such
certificates or other evidence as the Subscriber may request to
establish compliance with this condition.
Registration Rights Agreement. The registration
rights agreement to be entered into by the Subscriber, the
Company and each of the Other Subscribers providing for, among
other things, the registration of the Shares (the "Registration
Rights Agreement") shall have been duly executed and delivered by
the respective parties thereto, shall not have been terminated,
shall be in full force and effect and shall be in substantially
the form attached hereto as Exhibit B. The Subscriber shall have
received an original copy of the Registration Rights Agreement.
2.7 Proceedings and Documents. All corporate and
other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to the
Subscriber, and the Subscriber shall have received all such
counterpart originals or certified or other copies of such
documents as the Subscriber may reasonably request.
Sale of Other Shares. Contemporaneously with the
Closing, the Company shall sell to the Other Subscribers and
receive payment for that number of Shares that, when combined
with the Shares to be purchased by the Subscriber, will raise at
least $6,000,000 in aggregate gross proceeds to the Company.
Closing of ADAM Acquisition. At or prior to the time
of Closing, all requisite conditions to the closing of the
acquisition of ADAM Investment Services, Inc. substantially in
the manner described in the Memorandum shall have been satisfied
or waived, other than the payment of the consideration specified
for the closing of such acquisition and the Company shall
immediately transfer the specified consideration for such
acquisition in the manner contemplated upon completion of the
Closing.
3. Conditions to the Company's Obligations. The
Company's obligation to issue and sell the Shares under this
Agreement shall be subject to the fulfillment, prior to or at the
Closing, of the following conditions:
3.1 Representations and Warranties. The
representations and warranties of the Subscriber contained in
this Agreement shall have been true and correct in all material
respects when made and shall be true and correct in all material
respects on and as of the Closing Date, as if made on and as of
the Closing Date.
3.2 Letter from the Placement Agent. The Company
shall have received from Keefe, Bruyette & Woods, Inc. (the
"Placement Agent") a letter, dated as of the Closing Date and
addressed to the Company, substantially in the form of Exhibit C
attached hereto.
3.3 Payment for the Shares. The Subscriber shall have
delivered to the Company and the Company shall have received full
payment in immediately available funds in respect of such
Subscriber's purchase of the Shares.
3.4 Sale Permitted by Applicable Laws. The sale of
the Shares by the Company on the terms and conditions herein
shall not violate any applicable law, governmental regulation,
court order or injunction (temporary or permanent).
Representations and Warranties of the Company. The Company
represents and warrants to the Subscriber as follows:
Organization, Standing and Qualification. Each of the
Company and its Subsidiaries (as hereinafter defined) (i) is a
corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation; (ii) has all
requisite corporate power and authority to own or lease and
operate its properties and to carry on its business as now
conducted and as proposed to be conducted; and (iii) is duly
qualified or licensed to do business as a foreign corporation and
is in good standing in all jurisdictions in which it is required
to be so qualified or licensed except where the failure to be so
licensed or qualified would not have a material adverse effect on
the Company and its Subsidiaries taken as a whole. As used in
this Agreement, the term "Subsidiaries" means Portfolio
Management Consultants, Inc., Portfolio Brokerage Services, Inc.,
Portfolio Technology Services, Inc., and the term "Subsidiary"
refers to each of such entities individually. The Company does
not own any capital stock in any entity other than the
Subsidiaries.
4.2 Capitalization.
(a) The issuance and sale of the Shares has been
duly authorized by the Company, and upon payment for the Shares
in accordance with Section 1.3 hereof, the Shares will be validly
issued, fully paid and non-assessable.
(b) The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock and 5,000,000
shares of preferred stock, no par value (the "Preferred Stock").
As of the date of this Agreement, there are (x) 14,548,614 shares
of Common Stock issued and outstanding and no shares of Common
Stock held in the Company's treasury, (y) no shares of Common
Stock reserved for issuance upon exercise of outstanding stock
options, warrants or otherwise except for (i) 2,572,500 shares of
Common Stock reserved for issuance upon exercise of options
granted by the Company, exclusive of options on 415,000 shares
which will be granted to employees of ADAM Investment Services,
Inc. ("ADAM") in connection with the acquisition of all of the
outstanding capital stock of ADAM, (ii) 1,075,000 shares of
Common Stock reserved for issuance upon exercise of warrants
issued by the Company, and (iii) 138,182 shares of Preferred
Stock issued and outstanding, and no shares of the Preferred
Stock held in the Company's treasury or reserved for issuance
upon exercise of outstanding stock options or otherwise. All the
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and
nonassessable. Except (i) for the Other Agreements or (ii) as
described in the Memorandum, the Company does not have and is not
bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the
purchase or issuance of any shares of capital stock or any other
equity security of the Company or any securities representing the
right to purchase or otherwise receive any shares of capital
stock or any other equity security of the Company. Except as
described in the Memorandum, the Company has not entered into any
agreement to register its equity or debt securities under the
Securities Act of 1933, as amended (the "Securities Act"), other
than certain registration rights agreements covering shares of
common stock of the Company, the resale of which shares has been
included in a currently effective registration statement on form
SB-2 on file with the Commission, and there are no understandings
or agreements with respect to the voting of any of the Company's
capital stock.
(c) All of the outstanding shares of capital
stock of the Subsidiaries have been duly authorized and validly
issued and are fully paid and nonassessable, and all such shares
are owned directly or indirectly by the Company free and clear of
any lien, charge, encumbrance or security interest whatsoever.
No Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of
capital stock or any other equity security of such Subsidiary or
any securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity security
of such Subsidiary.
Authorization and Validity of Agreements
(a) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and
binding obligation of the Company enforceable against the Company
in accordance with its terms. All corporate proceedings on the
part of the Company necessary to approve this Agreement and to
consummate the transactions contemplated hereby have been taken
prior to the date of this Agreement.
(b) The Registration Rights Agreement has been
duly authorized and, when executed and delivered by the Company
at the Closing, will constitute a valid and binding obligation of
the Company enforceable against the Company in accordance with
its terms.
4.4 No Conflict with Other Instruments; No Approvals
Required ExcNo Conflict with Other Instruments; No Approvals
Required Except as Have Been Obtained. Delivery and performance
of this Agreement and the Registration Rights Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby and thereby will not violate, with or without
the giving of notice or the lapse of time, or both, or require
any registration, qualification, approval or filing under, any
provision of law, statute, ordinance or regulation applicable to
the Company, and will not conflict with, or require any consent
or approval under, or result in the breach or termination of any
provision of, or constitute a default under, or result in the
acceleration of the performance of the obligations of the Company
under, or result in the creation of any claim, lien, charge or
encumbrance upon any of the properties, assets or businesses of
the Company or any of the Subsidiaries pursuant to the Articles
of Incorporation or By-Laws of the Company or any of its
Subsidiaries, as the case may be, or any order, judgment, decree,
law, ordinance or regulation applicable to the Company or any
contract, instrument, agreement or restriction to which the
Company or any of the Subsidiaries is a party or by which the
Company or any of its Subsidiaries or any of their assets or
properties is bound. Neither the Company nor any of its
Subsidiaries nor any of their respective assets or properties is
subject to any charter, by-law, contract or other instrument or
agreement, order, judgment, decree, law, statute, ordinance or
regulation or any other restriction of any kind or character that
would prevent the Company from entering into this Agreement or
the Registration Rights Agreement or from consummating the
transactions contemplated hereby or thereby in accordance with
the terms hereof or thereof.
No Material Adverse Change. Since June 30, 1997,
there has not been any material adverse change in the business,
prospects, assets, liabilities, results of operations or
financial condition of the Company or any of its Subsidiaries,
except as described in, or contemplated by, the Memorandum.
Full Disclosure. None of the Memorandum, the
Registration Rights Agreement, this Agreement or the Schedules
hereto (excluding the Subscriber's representations and warranties
set forth herein), contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make
the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading except
that no representation or warranty is made with respect to the
projections set forth in the Memorandum under the caption "Pro
Forma Financial Information" other than as set forth in Section
4.7(b). There is no fact known to the Company which the Company
has not disclosed to the Subscriber in the Memorandum or herein
which materially adversely affects, or which could reasonably be
expected to materially adversely affect, the business, prospects,
assets, liabilities, results of operations or financial condition
of the Company and its Subsidiaries taken as a whole or the
ability of the Company to perform it obligations under this
Agreement or the Registration Rights Agreement.
Financial Statements
(a) Except as otherwise stated in the notes
thereto, the financial statements of the Company and its
Subsidiaries included as exhibits to the Memorandum have been
prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis and fairly
present the financial position, results of operations and changes
in financial position of the Company and its Subsidiaries as of
the dates and for the periods indicated. The selected financial
data relating to the Company and its Subsidiaries included in the
Memorandum have been compiled on a basis consistent with that of
the audited consolidated financial statements of the Company and
its Subsidiaries included Company's Form SB-2 included as an
exhibit to the Memorandum and fairly present the information
shown therein. Except as reflected in such financial statements
and the notes thereto, neither the Company nor any of its
Subsidiaries have any liabilities absolute or contingent, that
are, individually or in the aggregate, material to the Company
and its Subsidiaries, other than ordinary course liabilities
incurred since the last date of such financial statements in
connection with the transactions contemplated by the Memorandum
or with conduct of the business of the Company or any of its
Subsidiaries that are not, individually or in the aggregate,
material to the Company and its Subsidiaries taken as a whole.
(b) Nothing has come to the attention of the
Company which causes it to believe that the information contained
in the Memorandum under the caption "Pro Forma Financial
Information" is not reasonably based upon information available
to the management of the Company as of the date of the Memorandum
and at the time of Closing. The Company believes that, subject
to the limitations expressed therein, the projections of
financial results contained in the Memorandum were prepared on a
reasonable basis and the underlying assumptions provide a
reasonable basis for such forecast.
4.8 Use of Proceeds. The net proceeds from the sale
of the Shares will be used solely for the purposes set forth in
the Memorandum.
Litigation
(a) Except as described in the Memorandum, there
is no action, suit, proceeding or investigation pending, or to
the best knowledge of the Company, threatened, against or
affecting the Company or any of its Subsidiaries in any court or
before any governmental authority or arbitration board or
tribunal, which could, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the
business, assets, liabilities, results of operations or financial
condition of the Company and its Subsidiaries taken as a whole or
that could adversely affect the consummation of the transactions
contemplated hereby or by the Registration Rights Agreement.
(b) Except as described in the Memorandum,
neither the Company nor any of its Subsidiaries is subject to, or
in any material way affected by, any judgment, order, decree,
rule or regulation of any court, governmental authority or
arbitration board or tribunal which has materially adversely
affected or which could reasonably be expected to materially
adversely affect the business, assets, liabilities, results of
operations or financial condition of the Company and its
Subsidiaries taken as a whole or that could adversely affect the
consummation of the transactions contemplated hereby or by the
Registration Rights Agreement.
Taxes. The Company and its Subsidiaries have filed
all United States federal income tax returns and all other tax
returns that are required to be filed by it and all such tax
returns are true, correct and complete in all material respects.
The Company and its Subsidiaries have paid all taxes for the
periods covered by such returns, except for such taxes being
diligently contested in good faith and by appropriate proceedings
and adequately reserved for in accordance with GAAP on the
Company's balance sheet as of June 30, 1997. No claims for
additional taxes (as hereinafter defined), interest or penalties
are now being asserted or threatened against the Company or any
of its Subsidiaries by any taxing authority except for such
claims that, individually or in the aggregate, could not be
reasonably expected to have a material adverse effect on the
business, assets, liabilities, results of operations or financial
condition of the Company and its Subsidiaries taken as a whole or
are reserved for in accordance with GAAP on the Company's balance
sheet as of June 30, 1997. For purposes of this Agreement, the
term "taxes" shall mean all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross
receipts, excise, property, sales, use, occupation, transfer,
license, payroll, withholding, social security and franchise
taxes, imposed by the United States, or any state, local of
foreign government or subdivision or agency thereof; and such
term shall include any interest, penalties or additions to tax
attributable to such assessments. For purposes of this Agreement
the term "tax return" shall mean any report, return or other
information required to be supplied to taxing authority in
connection with taxes.
Compliance with Laws. Neither the Company nor any of
its Subsidiaries is, or after giving effect to the transactions
contemplated hereby and by the Registration Rights Agreement and
the transactions described in the Memorandum under the caption
"The Acquisition", will be, in material violation of any
statutes, laws, ordinances, rules or regulations, or any
judgment, order or decree (Federal, state, local or foreign) to
which any of them is, or will be, subject or has failed to obtain
any material licenses, permits, franchises or other governmental
authorizations necessary to the ownership or operation of its
properties or the conduct of its business.
Private Offering. Neither the Company, its
Subsidiaries nor, to the best knowledge of the Company, any
person authorized to act on behalf of the Company (other than the
Placement Agent, as to whom no such representation or warranty is
made) has taken any action which would require registration of
the offering and sale of the Shares pursuant to this Agreement or
the Other Agreements under the Securities Act or would violate
applicable state securities or "blue sky" laws or any rules,
regulations or policies adopted thereunder. The Company agrees
that it will not, and will not authorize anyone to, take any
action so as to require the issuance and sale of the Shares
within the provisions of Section 5 of the Securities Act.
SEC Reports. Since January 1, 1992, the Company has
filed all annual, quarterly and other reports required to be
filed by it with the Securities and Exchange Commission (the
"SEC") under Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). As of the dates filed,
such reports complied as to form in all material respects with
the requirements of the Exchange Act and did not, at the time of
filing, contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under
which they were made, not misleading.
4.14 Intellectual Property. Each of the Company
and its Subsidiaries owns or possesses all material patents,
trademarks, service marks, trade names, copyrights, licenses, and
other rights, in each case free from burdensome restrictions,
which are necessary for the ownership, maintenance and operation
of its properties and assets, and neither the Company nor any of
its Subsidiaries is in violation of any provision thereof in any
material respect.
Investment Company Act. The Company is not required
to register as an investment company under the Investment Company
Act of 1940, as amended.
4.16 ADAM Acquisition. Substantially simultaneous
with the Closing, the Company will complete the acquisition of
all of the outstanding capital stock of ADAM, substantially as
disclosed in the Memorandum.
5. Representations and Warranties of the Subscriber.
The Subscriber represents and warrants as follows:
5.1 Due Organization, Good Standing and Authority. If
the Subscriber is not a natural person, such Subscriber
represents and warrants that it is a corporation, partnership or
trust duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. If the Subscriber
is a natural person, it represents and warrants that (i) it is
over 21 years of age, and (ii) the address set forth under its
name on the signature page hereof is its true and correct address
and residence.
Authorization and Validity of Agreement. This
Agreement has been duly authorized, executed and delivered by the
Subscriber and constitutes a valid and binding obligation of the
Subscriber, enforceable against the Subscriber in accordance with
its terms.
5.3 Accredited Investor. The Subscriber understands
that the Shares to be sold to such Subscriber are being offered
and sold without registration under the Securities Act, in
reliance, in part, upon the exemption provided in Regulation D
promulgated under Section 4(2) of the Securities Act. The
Subscriber further understands that such exemption depends in
part upon, and such Shares are being sold in reliance on, each of
the representations and warranties set forth in this Section and
in Section 5 of the Other Agreements. The Subscriber is an
"accredited investor" within the meaning of Regulation D
promulgated under the Securities Act, as indicated by the
responses to the Confidential Investor Questionnaire attached
hereto.
5.4 Investment Intent. The Subscriber represents to
the Company that it is purchasing the Shares to be purchased by
it solely for its own account or as trustee for a commingled
pension trust and with no intention of distributing or reselling
said Shares or any part thereof, or interest therein, in any
transaction which would be in violation of the securities laws of
the United States of America or any state thereof, without
prejudice, however, to the Subscriber's right at all times to
sell or otherwise dispose of all or any part of said Shares under
a registration under the Securities Act or under an exemption
from such registration available under the Securities Act and any
applicable state securities law, and subject, nevertheless, to
the disposition of the Subscriber's property being at all times
within the Subscriber's control in compliance with applicable
Federal and state regulations.
5.5 Accuracy and Reliance.
(a) All of the information concerning the
Subscriber supplied by it in any materials furnished to the
Company or the Placement Agent is accurate and complete.
(b) The Subscriber hereby acknowledges that it
has made, and is solely responsible for making, its own
independent evaluation of the economic and other risks involved
in its investment in the Shares and its own independent decision
to make such investment. The Subscriber hereby acknowledges
that it has prior investment experience, including investment in
non-listed and non-registered securities, or has employed the
services of an investment advisor, attorney and/or accountant to
read all of the documents furnished or made available by the
Company to the Subscriber and to evaluate the merits and risks of
such an investment on its behalf. The Subscriber can bear the
economic risk of this investment and can afford a complete loss
of its investment.
(c) The Subscriber hereby acknowledges that it
has been furnished with a copy of the Memorandum, and any other
documents that it has deemed necessary and requested in
connection with its evaluation of the offering of the Shares.
The Subscriber has been given the opportunity to ask questions
of, and receive answers from, the Company with respect to the
business, financial condition and results of operations of the
Company and its Subsidiaries and the terms and conditions of the
offering of the Shares; and the Subscriber has been given the
opportunity to obtain such additional information necessary to
verify the accuracy of the information contained in the
Memorandum or the accuracy of the information that was otherwise
provided in order for it to evaluate the merits and risks of an
investment in the Shares to the extent that the Company possesses
such information or can acquire it without unreasonable effort or
expense. The Subscriber acknowledges that financial projections
are by their nature speculative and there is no assurance that
the financial projections set forth in the Memorandum will prove
to be accurate and that actual results may differ materially from
those contemplated by such financial projections.
6. Compliance with the Securities Act.
6.1 Certificates Evidencing the Shares.
(a) The Subscriber hereby acknowledges and agrees
that each certificate evidencing the Shares shall be stamped or
otherwise imprinted with a legend in substantially the following
form:
"THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS. THE COMMON STOCK REPRESENTED BY THIS
CERTIFICATE MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN SECTION 6 OF THE SUBSCRIPTION
AGREEMENT DATED AS OF SEPTEMBER 22, 1997, COPIES OF WHICH
ARE ON FILE AT THE PRINCIPAL OFFICE OF PMC INTERNATIONAL,
INC."
(b) The certificates representing the Common Stock
and each certificate issued in transfer thereof, shall also bear
any legend required under any applicable state securities or
"blue sky" laws.
(c) The Subscriber consents to the Company's
making a notation on its records or giving instructions to any
transfer agent of the Common Stock in order to implement the
restrictions on transfer mentioned in this Section 6.
6.2 Notice of Proposed Transfer; Opinion of Counsel.
Prior to any transfer of any Shares which is not registered under
an effective registration statement under the Securities Act, the
holder thereof will give written notice to the Company of such
holder's intention to effect such transfer and shall deliver an
opinion of counsel, in form and substance reasonably satisfactory
to the Company, to the effect that the proposed transfer may be
effected without registration of such Shares under the Securities
Act. Each certificate issued upon or in connection with the
transfer of the Shares shall bear the appropriate restrictive
legend set forth in Section 6.1, unless in the opinion of such
counsel such legend is no longer required to insure compliance
with the Securities Act. The Company will pay the reasonable
fees and disbursements of counsel (other than house counsel) for
any holder of Shares in connection with any and all opinions
rendered by such counsel pursuant to this Section 6.2 when no
registration statement is in effect.
Miscellaneous
7.1 Filing of Registration Statement. In the event
that either (a) the registration statement required to be filed
by the Company pursuant to Section 2.1 of the Registration Rights
Agreement shall not have been so filed with the SEC on or prior
to the 60th calendar day following the Closing Date or (b) such
registration statement shall have been filed within such 60-day
period but shall not have been declared effective by the SEC on
or prior to the 150th calendar day after the filing date for such
registration statement, then the Company shall, within thirty
days of the first of such events not to have occurred, offer to
the Subscriber the opportunity to purchase at a price of $.01 per
share that number of shares of Common Stock equal to 1/6th of the
total number of shares of Common Stock purchased by the
Subscriber pursuant to this Agreement (a "Penalty Offering"). If
such registration statement has not been declared effective on or
before the 270th calendar day after the Closing Date, the Company
shall make another Penalty Offering to the Subscriber.
Thereafter, the Company shall make additional Penalty Offerings,
up to a maximum of six such Offerings (in the aggregate including
the initial and the 270th day Penalty Offering) for each
successive sixty-day period that passes without such registration
statement being declared effective.
7.2 New Share Issuance. Prior to the date that is 180
days after the Closing Date, the Company agrees not to issue any
new shares of Common Stock without the approval of a majority of
the shareholders of the Company, except that no such shareholder
approval shall be required for (i) the issuance of shares of
Common Stock pursuant to the exercise of currently outstanding
warrants or options, (ii) the issuance of shares of Common Stock
in connection with the conversion or exchange of currently
outstanding shares of the Company's Series A Preferred Stock, and
(iii) the issuance of a number of additional shares of Common
Stock equal to ten percent (10%) of the total number of shares of
Common Stock issued and outstanding immediately after the Closing
and the issuance of the Shares. Nothing in this Section 7.2
shall preclude the Company from adopting any stock option plan or
issuing options thereunder, provided that any shares of Common
Stock issued upon the exercise of options granted under any such
plan will be considered shares of Common Stock issued by the
Company under Section 7.2 (iii) above.
7.3 Survival of Representations and Warranties;
SeverabilitySurvival of Representations and Warranties;
Severability. All representations, warranties and agreements
contained in this Agreement or made in writing by or on behalf of
the Company or by the Subscriber in connection with the
transactions contemplated by this Agreement shall survive the
execution and delivery of this Agreement, any investigation at
any time made by the Subscriber or any other holder of the Shares
on the Subscriber's behalf, the purchase of the Shares under this
Agreement and any disposition or payment of the Shares. All
statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this
Agreement or in connection with the transactions contemplated by
this Agreement shall be deemed representations and warranties of
the Company under this Agreement.
7.4 Termination of Agreement. This Agreement may be
terminated and the transactions contemplated herein abandoned (i)
by the written agreement of the Company and the Subscriber or
(ii) by any party if the Closing has not occurred by October 31,
1997.
7.5 Amendment; Waiver. No provision of this Agreement
may be amended, up to a total of six (in the aggregate, including
all Penalty Offerings previously made under this Section 7.1),
waived or otherwise modified except by an instrument in writing
executed by the parties hereto.
Notices, etc. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement
shall be in writing and shall be delivered, or mailed by
registered or certified mail, return receipt requested, by a
nationally recognized overnight courier, postage prepaid, or by
telecopy addressed: (i) if to the Subscriber, at such address or
telecopy number as the Subscriber shall have furnished to the
Company in writing from time to time for such purpose, or (ii) if
to any other holder of any Shares, at such address as such other
holder shall have furnished to the Company in writing, or, until
any such other holder so furnishes to the Company an address,
then to and at the address of the last holder of such Share who
has furnished an address to the Company, or (iii) if to the
Company, to PMC International, Inc., 14th Floor, 555 Seventeenth
Street, Denver, Colorado 80202 to the attention of its President,
or at such other address or to the attention of such other
officer, as the Company shall have furnished to the Subscriber
and each such other holder in writing.
Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto,
whether so expressed or not. This Agreement may not be assigned
without the prior written consent of the other party hereto.
Descriptive Headings. The headings in this Agreement
are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof.
7.9 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES
SHALL BE GOVERNED BY, THE LAW OF THE STATE OF COLORADO, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
7.10 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, including those
delivered or received by facsimile transmission, each of which
shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more
than one such counterpart.
7.11 Integration; Severability.
(a) This Agreement, including Schedule A, the
Exhibits and the Confidential Investor Questionnaire attached
hereto, and the Registration Rights Agreement, embodies the
entire agreement and understanding between the Subscriber and the
Company and supersedes all prior agreements and understandings
relating to the subject matter hereof.
(b) Any provisions of this Agreement that are
prohibited, unenforceable or not authorized in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, unenforceability or lack of authorization
without invalidating the remaining provisions hereof or effecting
the validity, unenforceability or legality of such provision in
any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
PMC INTERNATIONAL, INC.
By:_____________________________
Name: Kenneth S. Phillips, President
and CEO
SUBSCRIBER
________________________________
Name of Entity (Print or Type)
By:_____________________________
Name:
________________________________
Signature of Individual Subscriber
________________________________
Name of Individual Subscriber
Address of Subscriber:
______________________________
______________________________
______________________________
<PAGE>
SCHEDULE A
PURCHASE PRICE
SUBSCRIBER # OF SHARES PER SHARE
<PAGE>
EXHIBIT A
(FORM OF OPINION OF COMPANY COUNSEL)
September 22, 1997
Investors Listed on Schedule A
Ladies and Gentlemen:
We have acted as counsel to PMC International, Inc.,
a Colorado corporation (the "Company"), in connection with
the issuance and sale of common stock of the Company, par
value $.01 per share (the "Common Stock"), pursuant to a
Private Placement Memorandum dated August 21, 1997, as
supplemented September __, 1997 (including its schedules,
appendices and exhibits, the "Memorandum"). Unless the
context otherwise requires, capitalized terms used but not
defined herein shall have the meaning ascribed to such
terms in the Memorandum.
In connection with the opinions hereinafter
expressed, we have examined originals or copies of such
agreements, other corporate documents, records and other
writings, and have conducted such investigations as we
have deemed necessary as a basis for the opinions
expressed herein. As to factual matters relevant to such
opinions, we have, without independent investigation
except where otherwise indicated, relied upon certificates
of officers of the Company and of public officials and
upon public records. We have assumed the genuineness of
all signatures, the authenticity of all documents, and the
conformity to originals of all documents submitted to us
as copies.
Based upon and subject to the foregoing and the
qualifications expressed below, we are of the following
opinion:
1. The Company has been duly incorporated and
is validly existing and in good standing under the laws of
the State of Colorado, with corporate power and corporate
authority to own and lease its properties and to conduct
its business as described in the Memorandum.
2. Each of the Subsidiaries of the Company
has been duly incorporated and is validly existing and in
good standing under the laws of its respective
jurisdiction of incorporation, with corporate power and
corporate authority to own and lease its properties and to
conduct its business as described in the Memorandum.
3. The issued shares of capital stock of each
of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable and are owned
beneficially and of record by the Company, and, upon
consummation of the Offering and the Restructuring, will
be free and clear of any security interests, liens,
encumbrances, equities or claims known to us after due
inquiry.
4. The Company has the authorized, issued and
outstanding capitalization as set forth in the Company's
Registration Statement on Form SB-2 which is attached as
an exhibit to the Memorandum, except as disclosed in the
Memorandum and Subscription Agreements. All of the issued
shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable and free of preemptive rights.
5. The Company has the corporate power and
corporate authority to execute, deliver and perform its
obligations under each of the Subscription Agreement and
the Registration Rights Agreement. Each of the
Subscription Agreement and the Registration Rights
Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company
in accordance with its terms, except as enforcement of
rights to indemnity and contribution thereunder may be
limited by federal or state securities laws or principles
of public policy and subject to the qualification that the
enforceability of the Company's obligations thereunder may
be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, and other laws
relating to or affecting creditors' rights generally and
by general equitable principles.
6. No authorization, registration, exemption,
approval, consent or order of, or filing with, any court
or governmental authority or agency is required on the
part of the Company in connection with the execution,
delivery and performance by the Company of the
transactions contemplated by the Subscription Agreement or
the execution and delivery of the Registration Rights
Agreement, except (i) such authorizations, registrations,
exemptions, approvals, consents, orders, and filings that
have been made or obtained, (ii) the filing of a notice on
Form D with the Securities and Exchange Commission and
(iii) the filing, registration or qualification
requirements under state securities laws, as to which we
express no opinion. The opinion set forth in this
paragraph also is based upon and assumes the accuracy of
the representations and warranties of the Subscribers and
other subscribers for securities of the Company set forth
in their respective subscription agreements and investor
questionnaires and the representations of the Placement
Agent set forth in a certain letter directed to the
Company by the Placement Agent in the form attached as an
exhibit to the Subscription Agreement.
7. The execution and delivery by the Company
of the Subscription Agreement and the Registration Rights
Agreement and the performance by the Company of the
transactions contemplated by the Subscription Agreement do
not, and the performance by the Company of the
transactions contemplated by the Registration Rights
Agreement will not, conflict with or result in any breach
or violation of (i) the Articles of Incorporation or the
By-laws of the Company and the Subsidiaries, (ii) any
indenture, mortgage, deed of trust, material lease or
other material agreement or instrument known to us, to
which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries or any of
their respective properties are bound and which is
material to the Company and the Subsidiaries taken as a
whole or (iii) any statute, judgment, decree, order, rule
or regulation of any court or governmental authority or
agency known to us and applicable to the Company or any of
the Subsidiaries.
8. The Shares conform in all material
respects to the description thereof contained in the
Memorandum and the form of certificate used to evidence
the Common Stock complies in all material respects with
the requirements of the Colorado Business Corporation Act.
9. The issuance of the Shares has been duly
authorized and, when issued by the Company and delivered
against payment of the purchase price therefor specified
in the Subscription Agreement, will be validly issued,
fully paid and non-assessable.
In addition, in connection with the
preparation of the Memorandum, we have participated in
conferences with officers and other representatives of the
Company, your representatives and representatives of your
counsel, at which conferences the contents of the
Memorandum and related matters were discussed, and,
although we have not independently verified and are not
passing upon (other than to the extent specified in
paragraph (8) above), and do not assume any responsibility
for, the accuracy, completeness or fairness of the
statements contained in the Memorandum, on the basis of
the foregoing, no facts have come to our attention that
have led us to believe that the Memorandum, as of the date
hereof, contains an untrue statement of a material fact or
omits to state any material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, except that we express no opinion or belief
with respect to (i) any matters contained in the
Memorandum under the caption "Financial Projections" or
(ii) any financial statements, schedules and other
financial or statistical information included or excluded
in the Memorandum.
The opinions expressed herein are rendered as of the
date hereof. We do not undertake to advise you of matters
that may come to our attention subsequent to the date
hereof and that may affect the opinions expressed herein,
including without limitation, future changes in applicable
law. The opinions expressed herein may be relied upon
only by you in connection with the Offering. The opinions
expressed herein are not to be quoted in whole or in part
or otherwise referred to in any other transaction and may
not be filed with any governmental agency or other entity
without our prior written consent, except that this
opinion may be disclosed to the extent required by
regulatory and other governmental authorities having
jurisdiction over you.
We are qualified to practice law in the State of
Colorado and do not purport to be an expert on, or to
express any opinion herein concerning, any law other than
the laws of the State of Colorado and the federal laws of
the United States of America.
Very truly yours,
By:
<PAGE>
SCHEDULE A
LIST OF INVESTORS
<PAGE>
EXHIBIT B
(FORM OF REGISTRATION RIGHTS AGREEMENT)
<PAGE>
EXHIBIT C
(FORM OF PLACEMENT AGENT LETTER)
September , 1997
PMC International, Inc.
Anaconda Tower
555 Seventeenth Street, Fourteenth Floor
Denver, Colorado 80202
Ladies and Gentlemen:
We have acted as placement agent for PMC
International, Inc., a Colorado corporation (the
"Company"), in connection with the private placement by
the Company of common stock, par value $.01 per share, of
the Company (the "Common Stock") pursuant to subscription
agreements between the Company and the subscribers listed
on the signature pages thereof (the "Subscription
Agreements"). Capitalized terms not otherwise defined
herein have the meanings given to such terms in the
Subscription Agreements. Pursuant to Section 3.2 of the
Subscription Agreements, we hereby certify that:
(i) Each Offeree (as defined below) was
provided with a copy of the Private Placement Memorandum,
dated August 21, 1997 (the "Private Placement Memorandum")
and all supplements or amendments thereto, along with
copies of each of the documents listed as Appendices or
Exhibits to the Private Placement Memorandum.
(ii) Immediately prior to mailing or
otherwise delivering the Private Placement Memorandum and
related documentation to each Offeree of the Common Stock,
we had reasonable grounds to believe and did believe that
each such offeree of the Common Stock was an "accredited
investor" within the meaning of Regulation D promulgated
under the Securities Act of 1933, as amended, and on the
Closing Date hereof, we continue to believe that each
subscriber is an "accredited investor" within the meaning
of such Regulation D.
(iii) In the case of each offer by the
Placement Agent of the Common Stock, no form of general
solicitation or general advertising was used by us,
including advertisements, articles, notices or other
communications published in any newspaper, magazine or
similar media or broadcast over radio or television, or
any seminar or meeting whose attendees have been invited
by general solicitation or general advertising.
(iv) We have delivered the Private
Placement Memorandum only to (i) persons to whom the
Company offered the Common Stock for sale or from whom the
Company solicited an offer to buy the Common Stock or with
whom the Company negotiated in respect of the Common Stock
(the "Offerees"), (ii) persons designated by and acting on
behalf of such Offerees in connection with such offer or
negotiation, or (iii) representatives and advisors of
Keefe, Bruyette & Woods, Inc. and its affiliates and the
Company.
Very truly yours,
KEEFE, BRUYETTE & WOODS,
INC.
By:
Name:
Title:
CONFIDENTIAL INVESTOR QUESTIONNAIRE
The Subscriber represents and warrants that it
comes within each category marked below, and that for any
category marked, such Subscriber has truthfully set forth
the factual basis or reason the Subscriber comes within
that category. ALL INFORMATION IN RESPONSE TO THIS
PARAGRAPH WILL BE KEPT STRICTLY CONFIDENTIAL. The
undersigned agrees to furnish such additional information
as is reasonably necessary in order for the Company to
verify the answers set forth below.
Please mark each applicable box
(A) The undersigned is an individual (not a
partnership, corporation, etc.) whose
individual net worth, or joint net worth with
his or her spouse, presently exceeds U.S.
$1,000,000.
Explanation. In calculating net worth
the Subscriber may include equity in
personal property and real estate,
including the Subscriber's principal
residence, cash, short-term
investments, stock and securities.
Equity in personal property and real
estate should be based on the
appraised fair market value of such
property less debt secured by such
property.
(B) The undersigned is an individual (not a
partnership, corporation, etc.) who had an
income in excess of U.S. $200,000 in each of
the two most recent years, or joint income
with their spouse in excess of U.S. $300,000
in each of those years (in each case including
foreign income, tax exempt income and full
amount of capital gains and losses but
excluding any income of other family members
and any unrealized capital appreciation) and
has a reasonable expectation of reaching the
same income level in the current year.
(C) The undersigned is a director or executive
officer of the Company which is issuing and
selling the Shares.
(D) The undersigned is a bank; a savings and loan
association; insurance company; registered
investment company; registered business
development company; licensed small business
investment company ("SBIC"); a plan,
established and maintained by a state, its
political subdivisions, or any agency or
instrumentality of a state or its political
subdivisions, for the benefit of its
employees, with total assets in excess of U.S.
$5,000,000 or an employee benefit plan within
the meaning of Title 1 of ERISA and (a) the
investment decision is made by a plan
fiduciary which is either a bank, savings and
loan association, insurance company or
registered investment advisor, or (b) the plan
has total assets in excess of U.S. $5,000,000
or (c) is a self directed plan with investment
decisions made solely by persons that are
accredited investors.
(describe entity)
(E) The undersigned is a private business
development company as defined in section
202(a)(22) of the Investment Advisors Act of
1940;
(describe entity)
(F) The undersigned is a corporation, partnership,
Massachusetts or other business trust, or a
non-profit organization within the meaning of
Section 501(c)(3) of the Internal Revenue
Code, in each case not formed for the specific
purpose of acquiring the Shares and with total
assets in excess of U.S.$5,000,000;
(describe entity)
(G) The undersigned is a trust with total assets
in excess of U.S. $5,000,000, not formed for
the specific purpose of acquiring the Shares,
where the purchase is directed by a
"sophisticated person" as defined in Rule
506(b)(2)(ii) under the Securities Act. Such
"sophisticated person" has the knowledge and
experience in financial and business matters
to capably evaluate the merits and risks of
the prospective investment.
(H) The undersigned is an entity all the equity
owners of which are "accredited investors"
within one or more of the above categories.
(describe entity)
(I) The undersigned is not within any of the
categories above and is therefore a
nonaccredited investor.
THE UNDERSIGNED IS INFORMED OF THE SIGNIFICANCE OF THE
FOREGOING REPRESENTATIONS, AND THEY ARE MADE WITH THE
INTENTION THAT THE COMPANY WILL RELY ON THEM.
MANNER IN WHICH TITLE TO BE HELD (check one)
Individual Ownership
Community Property
Joint Tenant with Right of Survivorship (both
parties must sign)
Partnership
Tenants in Common
Corporation
Company
Other
[NAME OF SUBSCRIBER]
By: ____________________
Name:
Title:
<PAGE>
EXHIBIT 10.16 Form of Registration Rights Agreement,
dated as of September 22, 1997, among the Company and the
purchasers in the PMCIS Private Placement
PMC International, Inc.
REGISTRATION RIGHTS AGREEMENT
Dated as of September 22, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
1. Definitions........................................1
2. Registration under Securities Act, etc..............3
2.1 Filing and Maintenance of Shelf Registration...3
(a) Filing....................................3
(b) Registration Statement Form...............4
(c) Expenses..................................4
(d) Underwritten Offering.....................4
2.2 Registration Procedures........................4
2.3 Underwritten Offerings.........................9
(a) Requested Underwritten Offerings..........9
(b) Priority in Requested Underwritten Offering10
(c) Holdback Agreement.......................11
(d) Participation in Underwritten Offerings..11
2.4 Indemnification...............................11
(a) Indemnification by the Company...........11
(b) Indemnification by the Holders...........12
(c) Notices of Claims, etc...................13
(d) Indemnification Payments.................13
(e) Contribution.............................13
3. Rule 144...........................................15
4. Amendments and Waivers.............................15
5. Nominees for Beneficial Owners.....................15
6. Notices............................................15
7. Assignment.........................................16
8. Descriptive Headings...............................16
9. Governing Law......................................16
10. Counterparts.......................................16
11. Entire Agreement...................................16
12. Severability.......................................17
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of
September 22, 1997, among PMC International, Inc., a
Colorado corporation (the "Company"), and each of the
subscribers referred to below (individually, a
"Subscriber" and collectively, the "Subscribers"). The
Subscribers are listed on Schedule A to this Agreement.
WHEREAS, the Company is a party to the separate
Subscription Agreements (the "Subscription Agreements")
with each of the Subscribers pursuant to which the
Company has agreed, among other things, to issue shares of
its common stock, par value $.01 per share (the "Common
Stock"), to each of the Subscribers; and
WHEREAS, as a condition to the closing of the
issuance of the Common Stock under the Subscription
Agreements, the Company has agreed to provide registration
rights with respect to the Common Stock as set forth in
this Agreement.
NOW, THEREFORE, in consideration of the
premises and of the mutual covenants, representations,
warranties and agreements herein contained, the parties
hereto agree as follows:
1. Definitions1. As used
herein, unless the context otherwise requires, the
following terms have the following respective meanings:
Additional Common Stock: Any and all shares of
Common Stock issued to the Subscribers pursuant to
Section 7.1 of the Subscription Agreement.
Closing Date: The date of the closing of the
issuance of the Common Stock pursuant to the Subscription
Agreements.
Commission: The Securities and Exchange
Commission or any other Federal agency at the time
administering the Securities Act.
Common Stock: As defined in the recitals
hereto.
Company: As defined in the introductory
paragraph of this Agreement.
Exchange Act: The Securities Exchange Act of
1934, as amended, or any similar Federal statute, and the
rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to
a particular section of the Exchange Act shall include a
reference to the comparable section, if any, of any such
similar Federal statute.
Initiating Holders: Any holder or holders of
Registrable Securities holding at least 25% of the
Registrable Securities, in the aggregate, and initiating a
request pursuant to Section 2.1(d) to effect the
underwritten offering of Registrable Securities.
Inspector: As defined in Section 2.3(j).
NASD: National Association of Securities
Dealers, Inc.
Person: A corporation, an association, a
partnership, an organization, business, an individual, a
governmental or political subdivision thereof or a
governmental agency.
Registrable Securities: Any and all shares of
Common Stock issued to Subscribers pursuant to the
Subscription Agreements and any shares of Additional
Common Stock and any securities issued or issuable with
respect to any Common Stock or Additional Common Stock
referred to above by way of stock dividend or stock split
or in connection with a combination of shares,
recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such
securities shall have become effective under the
Securities Act and such securities shall have been
disposed of in accordance with such registration
statement, (b) they shall have been distributed to the
public pursuant to Rule 144, (c) they shall have been
otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have
been delivered by the Company and subsequent disposition
of them shall not require registration or qualification
of them under the Securities Act or any similar state law
then in force, or (d) they shall have ceased to be
outstanding.
Registration Expenses: All expenses incident
to the Company's performance of or compliance with
Section 2, including, without limitation, all registration
filing and NASD fees, all stock exchange listing fees,
all fees and expenses of complying with securities or
blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky
qualification of any of the Registrable Securities), all
word processing, duplicating and printing expenses,
messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its
independent public accountants, including the expenses of
any special audits or "cold comfort" letters required by
or incident to performance and compliance, the reasonable
fees and disbursements of a single counsel retained by
the holder or holders of a majority (by number of shares)
of the Registrable Securities being registered; the fees
and expenses of a "qualified independent underwriter" if
required by Rule 2720 adopted pursuant to Article VII of
the ByLaws of the NASD in connection with the offering of
any of the Registrable Securities; premiums and other
costs of policies of insurance against liabilities
arising out of the public offering of the Registrable
Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers
or sellers of securities, but excluding underwriting
discounts and commissions and transfer taxes, if any, in
respect of the Registrable Securities, which shall be
payable by each holder thereof.
Registration Statement: As defined in
Section 2.1.
Regulation M. Regulation M promulgated under
the Exchange Act as shall be in effect at the time and
any successor provision under the Exchange Act.
Rule 144: Rule 144 promulgated under the
Securities Act as shall be in effect at the time and any
successor provision under the Securities Act.
Securities Act: The Securities Act of 1933, as
amended, or any similar Federal statute, and the rules
and regulations of the Commission thereunder, all as the
same shall be in effect at the time. References to a
particular section of the Securities Act shall include a
reference to the comparable section, if any, of any such
similar Federal statute.
Subscriber: As defined in the introductory
paragraph.
Subscription Agreement: As defined in the
recitals hereto.
2. Registration under Securities Act,
etc.
2.1 Filing and Maintenance of Shelf
Registration.
(a) Filing. The Company shall
file within 60 calendar days following the Closing Date a
"shelf registration" statement (the "Registration
Statement") covering the Registrable Securities and all
shares of Common Stock which the Company may elect to
register on behalf of other Persons and shall use its
best efforts to have such Registration Statement declared
effective by the Commission. The Company agrees to use
its best efforts to keep the Registration Statement
continuously effective for the period commencing on the
date of effectiveness and ending on the earlier to occur
of (i) the date when each of the Registrable Securities
ceases to be Registrable Securities and (ii) the later
of (x) two years after the Closing or (y) date when each
of the Registrable Securities not otherwise transferred
or sold pursuant to the Registration Statement may be
sold or distributed by the holder thereof in reliance
upon Rule 144(e) (giving effect to all conditions
thereof, including, without limitation, the volume
limitations contained in Rule 144(e)).
(b) Registration Statement Form
The Registration Statement
under this Section 2.1 shall be on such appropriate
registration form of the Commission as shall be selected
by the Company and as shall permit the disposition of
such Registrable Securities in accordance with the
intended method or methods of disposition (including an
underwritten offering).
(c) Expenses(c) Expenses. The
Company shall pay all Registration Expenses in connection
with the registration contemplated by this Section 2.1.
Each holder of Registrable Securities shall pay all
underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of
such holder's Registrable Securities pursuant to the
Registration Statement.
(d) Underwritten Offering
One or more Initiating Holders
may, at any two times for all Initiating Holders while
the Registration Statement is effective, request that the
Company amend or supplement the Registration Statement to
effect an underwritten offering. The Company shall
provide prompt notice of such request to the holders of
all Registrable Securities, and shall as promptly as
practicable amend or supplement the Registration Statement
to the extent required to permit the disposition in
accordance with such request. The Company's obligation to
maintain the effectiveness of the Registration Statement
in accordance with Section 2.1(a) shall not be affected
by compliance with this paragraph.
2.2 Registration Procedures.
In connection with the Company's obligations
to effect the registration of any Registrable Securities
under the Securities Act as provided in this Section 2,
the Company shall, as expeditiously as possible:
(a) prepare and file with the
Commission, within any applicable time periods
specified in this Section 2, the requisite
registration statement to effect such registration
and thereafter use its best efforts to cause such
registration statement to become and remain
effective in accordance with Section 2 hereof;
provided, however, that before filing such
registration statement or any amendments thereto,
the Company shall furnish to the counsel selected by
the holders of Registrable Securities which are to
be included in such registration copies of all such
documents proposed to be filed, which documents
shall be subject to the review of such counsel;
(b) prepare and file with the
Commission such amendments and supplements to such
registration statements and prospectuses used in
connection therewith as may be necessary to keep
such registration statements effective for the
applicable periods specified in this Section 2 and
to comply with the provisions of the Securities Act
with respect to the disposition of all securities
covered by such registration statements during such
applicable periods;
(c) furnish, without charge, to
each holder of Registrable Securities covered by
such registration statement and each underwriter, if
any, of the securities being sold by such holder
such number of conformed copies of such registration
statement and of each such amendment and supplement
thereto (in each case including all exhibits), such
number of copies of the prospectus contained in such
registration statement (including each preliminary
prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the
Securities Act, and such other documents, as such
holder and underwriter, if any, may reasonably
request in order to facilitate the public sale or
other disposition of the Registrable Securities
owned by such holder; the Company consents to the
use of the prospectus or any amendment or supplement
thereto by any such holder and underwriter in
connection with the offering and sale of Registrable
Securities covered by such prospectus and any
amendment or supplement thereto;
(d) use its best efforts to
register or qualify all Registrable Securities and
other securities covered by such registration
statement under such other securities laws or blue
sky laws of such jurisdictions as any holder thereof
and any underwriter of the securities being sold by
such holder shall reasonably request, to keep such
registrations or qualifications in effect for so
long as such registration statement remains in
effect, and take any other action which may be
reasonably necessary or advisable to enable such
holder and underwriter, if any, to consummate the
disposition in such jurisdictions of the securities
owned by such seller, except that the Company shall
not for any such purpose be required to qualify
generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the
requirements of this subdivision (d) be obligated to
be so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to cause
all Registrable Securities covered by such
registration statement to be registered with or
approved by such other governmental agencies or
authorities as may be necessary to enable the holder
or holders thereof to consummate the disposition of
such Registrable Securities;
(f) furnish to each holder of
Registrable Securities covered by such registration
statement a signed counterpart, addressed to such
holder and the underwriters, if any, of:
(i) an opinion of counsel
for the Company, dated the effective date of
such registration statement (or, if such
registration includes an underwritten public
offering, an opinion dated the date of the
closing under the underwriting agreement),
reasonably satisfactory in form and substance
to such holder, and
(ii) a "comfort" letter
(or, in the case of any such Person which does
not satisfy the conditions for receipt of a
"comfort" letter specified in Statement on
Auditing Standards No. 72, an "agreed upon
procedures" letter), dated the effective date
of such registration statement (and, if such
registration includes an underwritten public
offering, a letter of like kind dated the date
of the closing under the underwriting
agreement), signed by the independent public
accountants who have certified the Company's
financial statements included in such
registration statement,
covering substantially the same matters with respect
to such registration statement (and the prospectus
included therein) and, in the case of the
accountants' letter, with respect to events
subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the
underwriters in underwritten public offerings of
securities (with, in the case of an "agreed upon
procedures" letter, such modifications or deletions
as may be required under Statement on Auditing
Standards No. 35) and, in the case of the
accountants' letter, such other financial matters,
and, in the case of the legal opinion, such other
legal matters, as such holder (or the underwriters,
if any) may reasonably request;
(g) notify the holders of
Registrable Securities covered by such Registration
Statement and the managing underwriter or
underwriters, if any, promptly and confirm such
advice in writing promptly thereafter:
(i) when the registration
statement, the prospectus or any prospectus
supplement related thereto or post-effective
amendment to the registration statement has
been filed, and, with respect to the
registration statement or any post-effective
amendment thereto, when the same has become
effective;
(ii) of any request by the
Commission for amendments or supplements to the
registration statement or the prospectus or for
additional information;
(iii) of the issuance by
the Commission of any stop order suspending the
effectiveness of the registration statement or
the initiation of any proceedings by any Person
for that purpose;
(i) if at any time the
representations and warranties of the Company
made as contemplated by Section 2.4(a) below
cease to be true and correct;
(ii) of the receipt by the
Company of any notification with respect to the
suspension of the qualification of any
Registrable Securities for sale under the
securities or blue sky laws of any jurisdiction
or the initiation or threat of any proceeding
for such purpose; and
(h) notify each holder of
Registrable Securities covered by such registration
statement, at any time when a prospectus relating
thereto is required to be delivered under the
Securities Act, upon the Company's discovery that,
or upon the happening of any event as a result of
which, the prospectus included in such registration
statement, as then in effect, includes an untrue
statement of a material fact or omits to state any
material fact required to be stated therein or
necessary to make the statements therein in the
light of the circumstances under which they were
made not misleading, and at the request of any such
holder promptly prepare and furnish to such holder
and each underwriter, if any, a reasonable number of
copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such
securities, such prospectus shall not include an
untrue statement of a material fact or omit to state
a material fact required to be stated therein or
necessary to make the statements therein in the
light of the circumstances under which they were
made not misleading; provided, however, that the
Company may delay effecting or causing to be
effected a supplement or post-effective amendment to
the registration statement or the related
prospectus, for a period not to exceed 90 days in
any 365-day period; provided, further, that (i) the
Company shall notify the holders of Registrable
Securities in writing both of its intention to
effect such delay and of the date on which such
supplement or post-effective amendment has been
filed with the Commission or declared effective, as
the case may be, and (ii) the period during which
the registration statement shall be maintained
effective pursuant to this Agreement shall be
extended as described below;
(i) use its best efforts to
obtain the withdrawal of any order suspending the
effectiveness of the registration statement at the
earliest possible moment;
(j) subject to entering into
confidentiality arrangements in form and substance
reasonably satisfactory to the Company, make
available for inspection by a representative or
representatives of the holders of Registrable
Securities covered by such registration statement,
any underwriter participating in any disposition
pursuant to the registration statement and any
attorney or accountant retained by such holders or
underwriter (each, an "Inspector"), all financial
and other records, pertinent corporate documents and
properties of the Company, and cause the Company's
officers, directors and employees to supply all
information reasonably requested by any such
Inspector in connection with such registration in
order to permit a reasonable investigation within
the meaning of Section 11 of the Securities Act;
(k) use its best efforts to list
all Registrable Securities covered by such
registration statement on any securities exchange on
which any of the securities of the same class as the
Registrable Securities are then listed;
(l) provide a transfer agent and
registrar for all Registrable Securities covered by
such registration statement not later than the
effective date of such registration statement;
(m) cooperate with the holders of
Registrable Securities covered by such registration
statement and the underwriter, if any, to facilitate
the timely preparation and delivery of certificates
representing Registrable Securities to be sold and
not bearing any restrictive legends; and enable such
Registrable Securities to be in such denominations
and registered in such names as the holders or the
underwriter, if any, may reasonably request at least
three business days prior to any sale of Registrable
Securities;
(n) otherwise use all best
efforts to comply with all applicable rules and
regulations of the Commission, and make available to
its securityholders, as soon as reasonably
practicable, an earnings statement covering the
period of at least 12 months, but not more than 18
months, beginning with the first full calendar month
after the effective date of such registration
statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities
Act and Rule 158 promulgated thereunder.
As a condition to the registration by the
Company of a holder's Registrable Securities, the Company
may require such holder to furnish the Company such
information regarding such holder and the distribution of
such securities as the Company may from time to time
reasonably request in writing.
The Company shall not file any registration
statement or amendment thereto or any prospectus or any
supplement thereto (including such documents incorporated
by reference and proposed to be filed after the initial
filing of the registration statement) to which the
holders of at least a majority of the Registrable
Securities covered by such registration statement or the
underwriter or underwriters, if any, shall reasonably
object, provided that the Company may file such document
in a form required by law or upon the advice of its
counsel.
Each holder of Registrable Securities agrees
that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in
subdivision (h) of this Section 2.2, such holder shall
forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration
statement relating to such Registrable Securities until
such holder's receipt of the copies of the supplemented
or amended prospectus contemplated by subdivision (h) of
this Section 2.2 and, if so directed by the Company,
shall deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to
such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall
give any such notice, the period of time for which the
Company shall be required to keep the applicable
registration statement effective shall be extended by the
length of the period from and including the date when
each holder of any Registrable Securities covered by such
registration statement shall have received such notice to
the date on which each such holder has received the
copies of the supplemented or amended prospectus
contemplated by paragraph (h) of this Section 2.2. Each
holder of Registrable Securities agrees that it will
comply at all times with the requirements of Regulation M.
2.3 Underwritten Offerings
(a) Requested Underwritten Offerings
If the holders of the
Registrable Securities elect to effect an underwritten
offering pursuant to Section 2.1(d), the managing
underwriter or underwriters for such underwritten offering
shall be selected by the Company and shall be reasonably
acceptable to the holders of at least a majority (by
number of shares) of the Registrable Securities
participating in any such underwritten offering. If
requested by the underwriters for any such underwritten
offering, the Company shall enter into an underwriting
agreement with such underwriters for such offering, such
agreement to contain such representations and warranties
by the Company and such other terms as are generally
prevailing in agreements of this type, including, without
limitation, indemnities. The holders of the Registrable
Securities shall cooperate with the Company in the
negotiation of the underwriting agreement. The holders of
Registrable Securities to be distributed by such
underwriters shall be parties to any such underwriting
agreement and such holders may, at their option, require
that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to
and for the benefit of such underwriters shall also be
made to and for the benefit of such holders and that any
or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders.
Any such holder of Registrable Securities shall not be
required to make any representations or warranties to or
agreements with the Company or the underwriters other
than representations and warranties or agreements
regarding such holder, such holder's Registrable
Securities and such holder's intended method of
distribution and any other representation required by law
or by the underwriters for such underwritten offering.
(b) Priority in Requested Underwritten
Offering.
If the holders of the Registrable Securities
elect to effect an underwritten offering pursuant to
Section 2.1(d) and, in connection therewith, the managing
underwriter advises each holder of Registrable Securities
requesting to participate in such underwritten offering
and the Company in writing that, in its opinion, the
number of securities requested to be included in such
underwritten offering (including securities of the
Company which are not Registrable Securities) exceeds the
number which can be sold in such offering within a price
range acceptable to the holders of a majority of the
Registrable Securities so requested to be included in
such offering, the Company shall include in such
offering, to the extent of the number which the Company is
so advised can be sold in such offering, (i) first,
Registrable Securities requested to be included in such
offering by the holder or holders of Registrable
Securities thereof, pro rata among such holders requesting
inclusion in such offering on the basis of the number of
such securities requested to be included by such holders,
subject to any rights of (A) Bedford Capital Financial
Corporation ("Bedford") to participate in such
underwritten offering pursuant to the Amended and
Restated Registration Rights Agreement, dated as of
December 24, 1996, between the Company and Bedford, and
(B) the parties to that certain Registration Rights
Agreement, dated as of December 23, 1996, among the
Company, Keefe, Bruyette & Woods, Inc., certain holders
of the Company's warrants issued in November, 1996 and
certain persons who acquired Common Stock in December,
1996, and (ii) second, if and only if all Registrable
Securities requested to be included in such underwritten
offering by the holders thereof are so included, other
securities of the Company requested to be included in
such offering by the holders thereof, pro rata among such
holders requesting inclusion in such offering on the
basis of the number of such securities requested to be
included by such holders.
(c) Holdback Agreement.
Except to the extent required by any
agreement in existence as of the date of this Agreement,
the Company agrees not to effect any public sale or
distribution of or otherwise dispose of its equity
securities or securities convertible into or exchangeable
or exercisable for any of such securities during the
seven days prior to the date any underwritten
registration pursuant to Section 2.1(d) has become
effective and during the period ending on the earlier of
(A) 90 days after any underwritten registration pursuant
to Section 2.1(d) has become effective, (B) the day on
which the underwriting syndicate of such offering shall
have been disbanded, and (C) such date as the Company,
the managing underwriter and the holders of the
Registrable Securities shall otherwise agree, except as
part of such underwritten registration and except in
connection with a stock option plan, stock purchase plan,
managing directors' plan, savings or similar plan, or an
acquisition of a business, merger or exchange of stock
for stock.
(d) Participation in Underwritten
Offerings.
No holder of Registrable Securities may participate in any
underwritten offering hereunder unless such holder (i)
agrees to sell such holder's securities on the basis
provided in any underwriting arrangements approved,
subject to the terms and conditions hereof, by the
holders of a majority (by number of shares) of Registrable
Securities to be included in such underwritten offering
and (ii) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents
(other than powers of attorney) required under the terms
of such underwriting arrangements. Notwithstanding the
foregoing, no underwriting agreement (or other agreement
in connection with such offering) shall require any
holder of Registrable Securities to make any
representations or warranties to or agreements with the
Company or the underwriters other than representations
and warranties or agreements regarding such holder, such
holder's Registrable Securities and such holder's
intended method of distribution and any other
representation required by law or by the underwriters for
such underwritten offering.
2.4 Indemnification2.4 Indemnification.
(a) Indemnification by the Company.
The Company shall, and
hereby does agree to, indemnify and hold harmless each
holder of any Registrable Securities covered by any
registration statement filed pursuant to Section 2, such
holder's directors and officers, each other Person, if
any, who controls such holder within the meaning of the
Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such holder or
any such director or officer or controlling person may
become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities
(or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of
any material fact contained in any registration statement
under which such securities were registered under the
Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and the Company shall
reimburse such holder and each such director, officer and
controlling person for any legal or any other expenses
reasonably incurred by them in connection with
investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that
the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through
an instrument duly executed by such holder specifically
stating that it is for use in the preparation thereof;
and; provided further, however, that the Company shall
not be liable in any such case to any Person who sells
Registrable Securities pursuant to a registration
statement filed pursuant to Section 2 or to any other
Person, if any, who controls such selling Person, in any
such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect
thereof) or expense arises out of such selling Person's
failure to send or give a copy of the final prospectus,
as the same may be then supplemented or amended, to the
Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission
at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement
or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of
such holder or any such director, officer, underwriter or
controlling person and shall survive the transfer of such
securities by such holder.
(b) Indemnification by the Holders.
The Company may require,
as a condition to including any Registrable Securities in
any registration statement filed pursuant to this Section
2, that the Company shall have received an undertaking
satisfactory to it from the prospective seller of such
Registrable Securities, to indemnify and hold harmless
(in the same manner and to the same extent as set forth
in subdivision (a) of this Section 2.4) the Company, each
director of the Company, each officer of the Company and
each other person, if any, who controls the Company
within the meaning of the Securities Act, with respect to
any statement or alleged statement in or omission or
alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in
reliance upon and in conformity with written information
furnished to the Company through an instrument duly
executed by such seller specifically stating that it is
for use in the preparation of such registration
statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Any such
indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of
the Company or any such director, officer or controlling
person and shall survive the transfer of such securities
by such seller. Indemnification by Holders under this
Section 2.4 shall not exceed the aggregate gross proceeds
received by the Company in the Offering (as defined in
the Subsciption Agreement).
(c) Notices of Claims, etc.
Promptly after receipt by an indemnified
party of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding
subdivisions of this Section 2.4, such indemnified party
shall, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the
latter of the commencement of such action; provided,
however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding
subdivisions of this Section 2.4, except to the extent
that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is
brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying
parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in
and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that
the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the
indemnifying party shall not be liable to such
indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any
judgment or enter into any settlement of any such action
which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in
respect to such claim or litigation. No indemnified
party shall consent to entry of any judgment or enter
into any settlement of any such action the defense of
which has been assumed by an indemnifying party without
the consent of such indemnifying party.
(d) Indemnification Payments.
The indemnification required
by this Section 2.4 shall be made by periodic payments of
the amount thereof during the course of the investigation
or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
(e) Contribution.
If the indemnification provided for in the preceding
subdivisions of this Section 2.4 is unavailable to an
indemnified party in respect of any expense, loss, claim,
damage or liability referred to therein, then each
indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such
expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the
holder on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand
and of the holder on the other in connection with the
statements or omissions which resulted in such expense,
loss, damage or liability, as well as any other relevant
equitable considerations. The relative benefits received
by the Company on the one hand and the holder on the
other in connection with the distribution of the
Registrable Securities shall be deemed to be in the same
proportion as the total net proceeds received by the
Company from the initial sale and issuance of the
Registrable Securities by the Company bear to the gain, if
any, realized by the selling holder. The relative fault
of the Company on the one hand and of the holder on the
other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of
a material fact or omission to state a material fact
relates to information supplied by the Company or by the
holder and the parties' relative intent, knowledge,
access to information and opportunity to correct or
prevent such statement or omission; provided, however,
that the foregoing contribution agreement shall not inure
to the benefit of any indemnified party if
indemnification would be unavailable to such indemnified
party by reason of the provisions contained in the first
sentence of subdivision (a) of this Section 2.4, and in
no event shall the obligation of any indemnifying party
to contribute under this subdivision (e) exceed the
amount that such indemnifying party would have been
obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (a) or (b)
of this Section 2.4 had been available under the
circumstances.
The Company and the holders of Registrable
Securities agree that it would not be just and equitable
if contribution pursuant to this subdivision (e) were
determined by pro rata allocation (even if the holders
were treated as one entity for such purpose) or by any
other method of allocation that does not take account of
the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or
payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth in
subdivision (c) of this Section 2.5, any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such
action or claim.
No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation.
3. Rule 144. The Company shall
timely file the reports required to be filed by it under
the Securities Act and the Exchange Act (including but
not limited to the reports under Sections 13 and 15(d) of
the Exchange Act referred to in subparagraph (c) of Rule
144) and the rules and regulations adopted by the
Commission thereunder and shall take such further action
as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to
enable such holder to sell Registrable Securities without
registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 or
(b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of
Registrable Securities, the Company shall deliver to such
holder a written statement as to whether it has complied
with the requirements of this Section 3.
4. Amendments and Waivers.
This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if
the Company shall have obtained the written consent to
such amendment, action or omission to act, of the holders
of a majority (by number of shares) of the Registrable
Securities. Each holder of any Registrable Securities at
the time or thereafter outstanding shall be bound by any
consent authorized by this Section 4, whether or not such
Registrable Securities shall have been marked to indicate
such consent.
5. Nominees for Beneficial Owners.
In the event that any
Registrable Securities are held by a nominee for the
beneficial owner thereof, the beneficial owner thereof
may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or
other action by any holder or holders of Registrable
Securities pursuant to this Agreement or any
determination of any number or percentage of shares of
Registrable Securities held by any holder or holders of
Registrable Securities contemplated by this Agreement.
If the beneficial owner of any Registrable Securities so
elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership
of such Registrable Securities.
6. Notices. Except as otherwise
provided in this Agreement, all notices, requests and
other communications to any Person provided for hereunder
shall be in writing and shall be given to such Person (a)
in the case of a party hereto other than the Company,
addressed to such party in the manner set forth in the
applicable Subscription Agreement or at such other
address as such party shall have furnished to the Company
in writing, (b) in the case of any other holder of
Registrable Securities, at the address that such holder
shall have furnished to the Company in writing, or, until
any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of
such Registrable Securities who has furnished an address
to the Company, or (c) in the case of the Company, at 555
17th Street, 14th Floor, Denver, Colorado 80202 to the
attention of Kenneth S. Phillips, President, or at such
other address, or to the attention of such other officer,
as the Company shall have furnished to each holder of
Registrable Securities at the time outstanding. Each
such notice, request or other communication shall be
effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (ii) if given
by any other means (including, without limitation, by air
courier), when delivered at the address specified above,
provided that any such notice, request or communication
to any holder of Registrable Securities shall not be
effective until received.
7. Assignment
This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their
respective successors and assigns. In addition, and
whether or not any express assignment shall have been
made, the provisions of this Agreement which are for the
benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any
subsequent holder of any Registrable Securities, subject
to the provisions respecting the minimum numbers or
percentages of shares of Registrable Securities required
in order to be entitled to certain rights, or take
certain actions, contained herein.
8. Descriptive Headings.
The descriptive headings of the several
sections and paragraphs of this Agreement are inserted
for reference only and shall not limit or otherwise
affect the meaning hereof.
9. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAWS OF THE STATE OF COLORADO WITHOUT REFERENCE TO
THE PRINCIPLES OF CONFLICTS OF LAWS.
10. Counterparts.
This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original,
but all such counterparts shall together constitute one
and the same instrument.
11. Entire Agreement.
This Agreement, together with the Subscription Agreement
(including all schedules and Exhibits thereto) embodies
the entire agreement and understanding between the
Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements
and understandings relating to such subject matter.
12. Severability. If any
provision of this Agreement, or the application of such
provisions to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the
application of such provision to Persons or circumstances
other than those to which it is held invalid, shall not
be affected thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have caused
this Agreement to be executed and delivered by their
respective officers thereunto duly authorized as of the
date first above written.
PMC INTERNATIONAL, INC.
By:
__________________________________
Name: Kenneth S. Phillips,
President and CEO
SUBSCRIBER
______________________________________
Name of Entity (Print or Type)
By:___________________________________
Name:
_____________________________________
Signature of Individual Subscriber
______________________________________
Name of Individual Subscriber
Address of Subscriber:
______________________________
______________________________
______________________________
<PAGE>
SCHEDULE A
List of Subscribers
<PAGE>
EXHIBIT 10.17
September 10, 1997
KP3, LLC
Attention: Mr. Kenneth S. Phillips
555 17th Street, 14th Floor
Denver, CO 80202
Dear Mr. Phillips:
Citywide Banks / Aurora National Bank "ANB" is pleased to advise KP3, LLC, A
Colorado Limited Liability Company "Borrower" that a $1,400,000.00 term loan
has been approved. Provided no substantial changes occur with Borrowers
organization which would affect the integrity of the original loan approval,
this commitment to extend financing expires 45 days from the date of this
letter. Please refer to the terms listed below.
Loan Amount: $1,400,000.00
Rate: 8.00% Fixed.
Loan Fee: $500.00
Term: December 31, 1998.
Repayment: Interest paid quarterly, principal plus remaining accrued interest
due at maturity (December 31, 1998).
Prior to loan closing and funding, all file conditions must be satisfied.
Please refer to the aforementioned conditions listed below.
1. PMC International, Inc. to purchase a $1,400,000.00 Certificate of Deposit
from ANB using a Cashier Check or Advice of Charge (from a related PMC
International Inc. account maintained with ANB) as a source of certified funds.
The maturity of the Certificate of Deposit will be December 31, 1998, the
interest rate will be 6.35% with an annual percentage yield of 6.5% and accrued
interest on the Certificate of Deposit will be paid quarterly. All interest
payments on the Certificate of Deposit will be paid into the Certificate of
Deposit and can not be with drawn by PMC International Inc. at any time. After
purchase and at the time of loan closing, PMC International, Inc. will pledge
the Certificate of Deposit to ANB on behalf of Borrower as collateral on
Borrower's loan. The Certificate of Deposit will be maintained in ANB's
collateral vault.
2. Borrower's current lender Norwest Bank will be paid the full
$1,750,000.00 ($1,400,000.00 from this commitment and $350,000.00 form the
other KP3, LLC commitment issued on the same date) in order to satisfy
Borrower's existing credit obligation. Borrower will be required to pay
Norwest Bank any principal amount and accrued interest above and beyond the
$1,750,000.00 loan disbursement. Upon Norwest bank payoff, Norwest Bank will
be required to release any and all security interest and documents regarding
Borrower.
3. PMC International, Inc. to execute a Commercial Continuing Guaranty on
behalf of Borrower, a Security Agreement and a UCC-1 describing the
Certificate of Deposit as collateral pledged to ANB on behalf of Borrower,
and all other loan documents that may be reasonable required by Lenders
counsel.
4. Borrower to execute all ANB's closing documents which include, but not
limited to, the Promissory Note, Security Agreement, and all other loan
documents that may be reasonably required by Lenders counsel.
5. Mr. Kenneth S. Phillips to sign individually on all ANB closing documents
concerning Borrower.
6. PMC International, Inc. to provide ANB with quarterly FORM 10-QSB and
annual FORM 10-KSB on PMC International, Inc. and Subsidiaries no later than
sixty (60) days after each respective quarter or year-end has ended.
7. Borrower to provide ANB with 1996 tax returns and annual tax returns
thereafter.
8. Mr. Kenneth S. Phillips to provide ANB with annual personal financial
statements and annual personal tax returns within thirty (30) days after
completion. Mr. Phillips to complete a current personal financial statement
on ANB's standard form prior to loan closing and funding.
9. Borrower to maintain business and/or operating accounts with ANB.
10. Use of all loan proceeds will be for commercial purposes only.
11. This commitment dated September 10, 1997 superseded the original
commitment dated August 27, 1997 in the amount of $1,750,000.00 addressed to
KP3, LLC.
Default: The occurrence of any one or more of the following events shall, at
the option of ANB, constitute an event of default hereunder, and ANB reserves
the right, upon giving ten days prior notice to the Borrower, to cancel this
commitment and terminate its obligations hereunder.
a. If Borrower fails to observe or perform in a timely manner any of the
terms, covenants, promises, or agreements which it is obligated to observe or
perform under this commitment;
b. In the event that the financial condition of the Borrower prior to
closing should materially change unfavorably from the condition as heretofore
represented in Borrower's loan application and supporting documents;
c. In the event that there occurs any material change in the Collateral or
any condition that negatively affects the feasibility of the loan in any
material way;
d. The filing by or against the Borrower, or any guarantor, of a petition of
bankruptcy or insolvency or reorganization or of a petition for the
appointment of receiver or trustee, or the making by Borrower or guarantor of
any assignment for the benefit of creditors, or the filing of a petition for
the arrangement by Borrower or any guarantor in the event of any similar act
or occurrence;
e. If any information furnished or representation or warranty made or given
by Borrower herein or furnished in connection herewith shall prove to be
untrue in any material respect.
Nonassignability: Neither this commitment nor the Loan or the proceeds
thereof shall be assignable by Borrower without the prior written consent of
ANB. Any attempted assignment shall be void and constitute an act of default
hereunder.
Representations by Borrower: Borrower warrants that the facts submitted to
ANB on Borrower's original loan application and all facts or other statements
contained within the documents submitted herewith and any additional data or
information which may be furnished (all of which shall be deemed a part of
this commitment) are now and will be true and correct as of the date of the
Loan closing.
Nothing contained in this commitment or in any of the other Loan Documents
shall be construed as creating a joint venture or partnership between
Borrower and Lender. There shall be no sharing of losses, costs and expenses
between Borrower and Lender, and Lender shall have no right of control or
supervision except as it may exercise its rights and remedies provided in the
Loan Documents.
Survival: Borrower agrees that this commitment shall survive the Loan
closing, and that each and everyone of the obligations and undertakings of
Borrower contained herein shall be continuing obligations and undertakings
and shall not cease and terminate thereon and any other amounts which may
accrue pursuant to any other document executed in connection therewith, shall
have been paid in full, and all obligations and undertakings of the Borrower
have been paid in full, and until all obligations and undertakings of the
Borrower shall have been full discharged. This commitment shall constitute
one of the "Loan Documents" as later defined in the Loan Agreement.
Entire Agreement: This agreement can be modified, discharged, or terminated
only by writing signed by the party or parties against whom enforcement of
any modification, discharge, or termination is sought. No oral modification,
discharge, or termination shall be effective.
Choice of Law: This commitment shall be governed and construed in accordance
with the laws of the State of Colorado and to the extent applicable national
Banking Laws and Regulations. The documents which evidence and secure the
Loan shall be governed and construed in accordance with the laws of the State
of Colorado and the extent applicable National Banking Laws and Regulations.
Once again, ANB would like to thank Borrower for the opportunity to
accommodate Borrower's financial needs. ANB is looking forward to a long and
prosperous business relationship. Should you have any questions, please feel
free to contact me at 365-3803.
Sincerely
/s/ Mark Schmidt
- - --------------------------------
Mark Schmidt,
Assistant Vice President
ACKNOWLEDGEMENT:
Borrower agrees, understands and accepts; by signing below, all the terms and
conditions contained in this commitment letter dated September 10, 1997.
By: /s/ Kenneth S. By: /s/ Kenneth S.
Phillips Phillips
-------------------- --------------------
Kenneth S. Kenneth S.
Phillips, Phillips,
Manager Individually
Date: 10/1/97 Date: 10/1/97
PMC International, Inc.
By: /s/ Vali Nasr By: /s/ Maureen E.
Dobel
-------------------- --------------------
Vali Nasr, Maureen E. Dobel,
Treasurer & CFO Corporate Secretary
Date: 10/1/97 Date: 10/1/97
<PAGE>
EXHIBIT 10.18
March 31, 1998
KP3, LLC
Attention: Mr. Kenneth S. Phillips
555 17th Street, 14th Floor
Denver, CO 80202
Dear Mr. Phillips:
Citywide Banks / Aurora national Bank "ANB" is pleased to advise KP3, LLC, A
Colorado Limited Liability Company "Borrower" that a $350,000.00 term loan
has been approved. Provided no substantial changes occur with Borrowers
organization which would affect the integrity of the original loan approval,
this commitment to extend financing expires 45 days from the date of this
letter. Please refer to the terms listed below.
Loan Amount: $350,000.00
Rate: 8.00% Fixed.
Loan Fee: $100.00
Term: December 31, 1998.
Repayment: Interest paid quarterly, principal plus remaining accrued interest
due at maturity (December 31, 1998).
Prior to loan closing and funding, all file conditions must be satisfied.
Please refer to the aforementioned conditions listed below.
1. PMC International to purchase a $350,000.00 Certificate of Deposit from
ANB using a Cashier Check or Advice of Charge (from a related PMC International,
Inc. account maintained with ANB) as a source of certified funds. The maturity
of the Certificate of Deposit will be December 31, 1998, the interest rate will
be 6.35% with an annual percentage yield of 6.5% and accrued interest on the
Certificate of Deposit will be paid quarterly. All interest payments on the
Certificate of Deposit will be paid into the Certificate of Deposit and can
not be withdrawn by PMC International Inc. at any time. After purchase and
at the time of loan closing, PMC International, Inc. will pledge the
Certificate of Deposit to ANB on behalf of Borrower as collateral on
Borrower's loan. The Certificate of Deposit will be maintained in ANB's
collateral vault.
2. Borrower's current loan (loan number 697343256) maintained with ANB in
the amount of $350,000.00 will be paid the full with proceeds from the
aforementioned new loan.
3. PMC International, Inc. to execute a Commercial Guaranty on behalf of
Borrower, an Assignment of Deposit Account Agreement and a UCC-1 describing
the Certificate of Deposit as collateral pledged to ANB on behalf of
Borrower, and all other loan documents that may be reasonable required by
Lenders counsel.
4. Borrower to execute all ANB's closing documents which include, but not
limited to, the Promissory Note, Borrowing Resolution, and all other loan
documents that may be reasonably required by Lenders counsel.
5. Mr. Kenneth S. Phillips to sign individually on all ANB closing documents
concerning Borrower.
6. PMC International, Inc. to provide ANB with quarterly FORM 10-QSB and
annual FORM 10-KSB on PMC International, Inc. and Subsidiaries no later than
sixty (60) days after each respective quarter or year-end has ended.
7. Borrower to provide ANB with 1997 tax returns and annual tax returns
thereafter.
8. Mr. Kenneth S. Phillips to provide ANB with annual personal financial
statements and annual personal tax returns within thirty (30) days after
completion. Mr. Phillips to complete a current personal financial statement
on ANB's standard form prior to loan closing and funding.
9. Borrower to maintain business and/or operating accounts with ANB.
10. Use of all loan proceeds will be for commercial purposes only.
Default: The occurrence of any one or more of the following events shall, at
the option of ANB, constitute an event of default hereunder, and ANB reserves
the right, upon giving ten days prior notice to the Borrower, to cancel this
commitment and terminate its obligations hereunder.
a. If Borrower fails to observe or perform in a timely manner any of the
terms, covenants, promises, or agreements which it is obligated to observe or
perform under this commitment;
b. In the event that the financial condition of the Borrower prior to
closing should materially change unfavorably from the condition as heretofore
represented in Borrower's loan application and supporting documents;
c. In the event that there occurs any material change in the Collateral or
any condition that negatively affects the feasibility of the loan in any
material way;
d. The filing by or against the Borrower, or any guarantor, of a petition of
bankruptcy or insolvency or reorganization or of a petition for the
appointment of receiver or trustee, or the making by Borrower or guarantor of
any assignment for the benefit of creditors, or the filing of a petition for
the arrangement by Borrower or any guarantor in the event of any similar act
or occurrence;
e. If any information furnished or representation or warranty made or given
by Borrower herein or furnished in connection herewith shall prove to be
untrue in any material respect.
Nonassignability: Neither this commitment nor the Loan or the proceeds
thereof shall be assignable by Borrower without the prior written consent of
ANB. Any attempted assignment shall be void and constitute an act of default
hereunder.
Representations by Borrower: Borrower warrants that the facts submitted to
ANB on Borrower's original loan application and all facts or other statements
contained within the documents submitted herewith and any additional data or
information which may be furnished (all of which shall be deemed a part of
this commitment) are now and will be true and correct as of the date of the
Loan closing.
Nothing contained in this commitment or in any of the other Loan Documents
shall be construed as creating a joint venture or partnership between
Borrower and Lender. There shall be no sharing of losses, costs and expenses
between Borrower and Lender, and Lender shall have no right of control or
supervision except as it may exercise its rights and remedies provided in the
Loan Documents.
Survival: Borrower agrees that this commitment shall survive the Loan
closing, and that each and everyone of the obligations and undertakings of
Borrower contained herein shall be continuing obligations and undertakings
and shall not cease and terminate thereon and any other amounts which may
accrue pursuant to any other document executed in connection herewith, shall
have been paid in full, and all obligations and undertakings of the Borrower
have been paid in full, and until all obligations and undertakings of the
Borrower shall have been full discharged. This commitment shall constitute
one of the "Loan Documents" as later defined in the Loan Agreement.
Entire Agreement: This agreement can be modified, discharged, or terminated
only by writing signed by the party or parties against whom enforcement of
any modification, discharge, or termination is sought. No oral modification,
discharge, or termination shall be effective.
Choice of Law: This commitment shall be governed and construed in accordance
with the laws of the State of Colorado and to the extent applicable national
Banking Laws and Regulations. The documents which evidence and secure the
Loan shall be governed and construed in accordance with the laws of the State
of Colorado and the extent applicable National Banking Laws and Regulations.
Once again, ANB would like to thank Borrower for the opportunity to
accommodate Borrower's financial needs. ANB is looking forward to a long and
prosperous business relationship. Should you have any questions, please feel
free to contact me at 365-3803.
Sincerely
/s/ Mark Schmidt
- - --------------------------------
Mark Schmidt,
Assistant Vice President
ACKNOWLEDGEMENT:
Borrower agrees, understands and accepts; by signing below, all the terms and
conditions contained in this commitment letter dated March 31, 1998.
By: /s/ Kenneth S. By: /s/ Kenneth S.
Phillips Phillips
-------------------- --------------------
Kenneth S. Kenneth S.
Phillips, Phillips,
Manager Individually
Date: 4/15/98 Date: 4/15/98
PMC International, Inc.
By: /s/ Scott A. By: /s/ Maureen E.
MacKillop Dobel
-------------------- --------------------
Scott A. Maureen E. Dobel,
MacKillop, Chief Corporate Secretary
Operating Officer
Date: 4/15/98 Date: 4/15/98
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in Post Effective Amendment
Number 1 to the PMC International, Inc. Registration Statement on
Form SB-2 of our report dated March 5, 1998 accompanying the
consolidated financial statements of PMC International, Inc. for
the years ended December 31, 1997 and 1996 which is part of the
registration statement and to the reference to us under the
heading "Experts" in such registration statement.
April 29, 1998
Spicer, Jeffries & Co.
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Kenneth S.
Phillips, Scott A. MacKillop, Stephen M. Ash, and Maureen E.
Dobel, and each of them, his attorneys-in-fact and agents, with
full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign a registration
statement to be filed with the Securities and Exchange Commission
(the "Commission") on Form SB-2 in connection with the
registration by PMC International, Inc. a Colorado corporation
(the "Company"), of securities ("Securities") on behalf of
certain selling stockholders, and all amendments (including
post-effective amendments) thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, with the Commission; and to sign all documents in
connection with the qualification and sale of the Securities with
Blue Sky authorities and with the National Association of
Securities Dealers, Inc.; granting unto said attorneys-in-fact
full power and authority to perform any other act on behalf of
the undersigned required to be done in the premises, hereby
ratifying and confirming all that said attorneys-in-fact may
lawfully do or cause to be done by virtue hereof.
Date: April 27, 1998 /s/ Kenneth S. Phillips
Kenneth S. Phillips
Date: April 27, 1998 /s/ Scott A. MacKillop
Scott A. MacKillop
Date: April 28, 1998 /s/ Stephen M. Ash
Stephen M. Ash
Date: April 27, 1998 /s/ Maureen E. Dobel
Maureen E. Dobel
Date: April 27, 1998 /s/ J. W. Nevil Thomas
J.W. Nevil Thomas
Date: April 27, 1998 /s/ D. Porter Bibb
D. Porter Bibb
Date: April 27, 1998 /s/ Emmett J. Daly
Emmett J. Daly
Date: April 29, 1998 /s/ Richard Hyde
Richard Hyde
